The Risk–Reward Ratio (RRR) compares the potential loss (risk) of a trade to the potential gain (reward). It tells you how much you stand to gain for every rupee you risk. Professional traders never enter a trade without calculating this first.
A 1:3 risk-reward ratio means you risk ₹1 to potentially make ₹3 — you only need to win 25% of trades to break even.
How Risk–Reward Works
Identify entry price — The price at which you plan to buy/sell
Set your stop loss — The maximum loss you're willing to accept (your risk)
Set your target price — The price at which you'll book profit (your reward)
Calculate the ratio — Risk = |Entry - Stop Loss|, Reward = |Target - Entry|
Evaluate the trade — Only take trades with ratio of 1:2 or better
Size your position — Based on your max risk per trade (1-2% of capital)
Risk = Absolute difference between Entry Price and Stop Loss
Reward = Absolute difference between Target Price and Entry Price
Ratio = Risk / Reward (lower is better, e.g., 1:3)
Example: Long Trade on Nifty 50
Entry Price₹22,500
Stop Loss₹22,350 (150 points risk)
Target₹22,950 (450 points reward)
Risk:Reward Ratio1 : 3
VerdictExcellent Trade Setup
Win Rate vs Risk–Reward
The table shows the minimum win rate needed to be profitable at different RRR:
Risk:Reward
Min Win Rate to Break Even
Quality
Verdict
1:1
50%
Average
Avoid
1:2
33%
Good
Acceptable
1:3
25%
Very Good
Recommended
1:4
20%
Excellent
Ideal
1:5
17%
Outstanding
Rare but Best
*With 1:3 RRR, you can be wrong 75% of the time and still break even!
Key Trading Concepts
Position Sizing (1-2% Rule)
Never risk more than 1-2% of your total capital on a single trade. If capital is ₹5L, max risk per trade = ₹5,000-10,000.
Always Use Stop Loss
A trade without a stop loss is gambling. Define your exit point before entering. Stick to it — no "hoping" for recovery.
Let Winners Run
Don't exit profitable trades too early. Use trailing stop losses to lock in profits while letting the trade move in your favor.
Cut Losses Quickly
Small losses are part of trading. Accept them and move on. A ₹500 loss today prevents a ₹5,000 loss tomorrow.
Pro Tip: The 1% Rule
Risk only 1% of your capital per trade. With ₹5,00,000 capital, your max loss per trade should be ₹5,000. If your stop loss is ₹10/share, you can buy max 500 shares. This protects you from blowing up your account.
Risk–Reward Calculator
Price at which you'll enter the trade
Price at which you'll exit to limit loss
Price at which you'll book profit
Your total trading capital (for position sizing)
Recommended: 1-2% of capital
Amount at risk per share/unit
— : —
— shares
₹ ______
Important Disclaimer
Trading in stocks, futures, and options involves substantial risk of loss. This calculator is for educational purposes only. Past performance does not guarantee future results. Never trade with money you can't afford to lose. Always do your own research.
Trading Discipline Checklist
Always calculate Risk:Reward before entering a trade (minimum 1:2)
Never risk more than 1-2% of capital on a single trade
Place stop loss immediately after entering — no exceptions
Maintain a trading journal — record every trade with reason and outcome
Never average down a losing position — cut losses quickly, let winners run
Frequently Asked Questions
A minimum of 1:2 risk-reward ratio is recommended — meaning you risk ₹1 to potentially make ₹2. Professional traders often target 1:3 or higher. With a 1:2 ratio, you can be wrong 60% of the time and still be profitable. The higher the ratio, the fewer winning trades you need. Never take a trade with less than 1:1.5 risk-reward unless your win rate is exceptionally high.
Place your stop loss at a level where your trade thesis is invalidated — typically below a support level (for longs) or above resistance (for shorts). Don't set arbitrary percentage stops like "always 2%." Use technical levels like swing lows, moving averages, or ATR-based stops. Your stop loss defines your risk per trade, which should not exceed 1–2% of your total trading capital.
Position sizing determines how many shares or lots you trade based on your risk tolerance. If you have ₹5 lakh capital and risk 1% per trade (₹5,000), and your stop loss is ₹50 away from entry, your position size is 100 shares. Proper position sizing ensures no single trade can blow up your account. It's the most important risk management tool — more important than the entry point itself.
Not necessarily. The ideal ratio depends on the setup quality and market conditions. A high-conviction breakout trade might warrant a 1:4 target, while a range-bound scalp might only offer 1:1.5. What matters is your average risk-reward across all trades. Track your actual achieved ratio over 50+ trades — that's your real edge. Consistency beats perfection.
No single metric guarantees profits. Risk-reward ratio works in combination with win rate. A 1:3 ratio with a 30% win rate is profitable. A 1:1 ratio needs over 50% win rate. You need both a positive expected value (win rate x average win > loss rate x average loss) and disciplined execution. The risk-reward calculator helps you evaluate whether a trade is worth taking before you enter.
