Risk Reward Calculator
Risk Reward Calculator
The Ucharts Risk Reward Calculator helps traders evaluate whether a trade is worth taking before risking capital. By comparing potential profit against potential loss, traders can make more informed decisions and improve their overall trading discipline. Understanding risk-reward ratios is a fundamental part of successful trading and long-term risk management.
What Is a Risk Reward Ratio?
A risk reward ratio measures how much money you are willing to risk compared to how much you expect to gain from a trade.
For example:
- Risk = $5
- Reward = $15
Risk Reward Ratio:
1:3This means you’re risking $1 to potentially make $3.
How To Use This Calculator
- Enter your planned entry price.
- Enter your stop-loss price.
- Enter your target price.
- Click Calculate.
- Review the risk, reward, and ratio.
Example Calculation
Suppose:
- Entry Price = $100
- Stop Loss = $95
- Target Price = $115
Results:
- Risk = $5
- Reward = $15
- Risk Reward Ratio = 1:3
Many traders prefer setups with a risk reward ratio of at least 1:2 or higher.
Why Risk Reward Matters
Risk reward analysis helps traders:
- Identify high-quality setups
- Avoid low-probability trades
- Improve consistency
- Manage losses effectively
- Build a disciplined trading plan
What Is a Good Risk Reward Ratio?
General guidelines:
| Ratio | Assessment |
|---|---|
| 1:1 | Average |
| 1:2 | Good |
| 1:3 | Very Good |
| 1:4+ | Excellent |
A higher ratio means potential profits outweigh potential losses.
FAQ
What does a 1:3 risk reward ratio mean?
For every $1 risked, the potential reward is $3.
Is a higher risk reward ratio always better?
Not necessarily. A trade should also have a reasonable probability of reaching the target.
Do professional traders use risk reward ratios?
Yes. Most professional traders incorporate risk reward analysis into their trading plans.
Can this calculator be used for stocks?
Yes. It works for stocks, ETFs, forex, crypto, and many other markets.Risk Reward Calculator