Calculate risk-reward ratios, position sizing, and profitability metrics to optimize your trading strategy and risk management.
A 1:2 risk-reward ratio with 40% win rate is profitable, while 1:1 ratio requires 60%+ win rate. Higher ratios allow lower win rates for profitability.
Example: Risking $100 to make $200 (1:2 ratio) with 40% win rate yields $20 expected value per trade. Risking $100 to make $100 (1:1 ratio) with 40% win rate loses $20 per trade.
Risk: 50.0 pips
Reward: 100.0 pips
Good ratio
⚠️ Position size exceeds recommended risk level
Use technical analysis to find logical stop loss and take profit levels
Measure pips or points from entry to stop loss and take profit
Ensure your reward is at least twice your risk for sustainable profitability
Size your position so the dollar risk matches your risk management rules
A:A minimum 1:2 risk-reward ratio is recommended, meaning you risk $1 to potentially make $2. Professional traders often aim for 1:3 or higher ratios to ensure profitability even with lower win rates.
A:Risk-Reward Ratio = Potential Profit ÷ Potential Loss. For example, if you risk $100 to potentially make $300, your ratio is 3:1 (or 3.0).
A:With 1:1 ratio, you need >50% win rate. With 1:2 ratio, you need >33% win rate. With 1:3 ratio, you need >25% win rate. Higher ratios allow lower win rates for profitability.
A:Position sizing determines your actual dollar risk and reward. A 1:3 ratio with $100 risk means $300 potential profit. Larger positions increase both risk and reward proportionally.
A:No, adjust ratios based on market conditions and trade setups. High-probability trades can use lower ratios (1:1.5), while lower-probability trades need higher ratios (1:3 or more).
A:First determine your risk amount, then set stop loss at that distance. Multiply the risk distance by your desired ratio to set take profit. For example, 20-pip risk with 1:2 ratio = 40-pip take profit.