Why risk-reward matters
Risk-reward (R:R) is the ratio of how much you stand to lose to how much you stand to gain on a single trade. A 1:2 R:R means risking $1 for the chance to make $2. Combined with hit rate, it tells you whether a strategy has positive expectancy.
Long: risk = entry - stopLoss reward = takeProfit - entry Short: risk = stopLoss - entry reward = entry - takeProfit R:R = reward / risk
A trade with R:R below 1 means the worst case is bigger than the best case — the strategy needs a hit rate above 50% just to break even. Most retail strategies aim for R:R between 1:1.5 and 1:3 to remain robust against streaks of losses.
This calculator omits spread, swap, and commission. For position sizing tied to your account risk, see the Position Size Calculator.