Trade R:R analysis.

Risk-reward ratio compares potential reward to potential risk per trade. Formula: (target price - entry) / (entry - stop loss). Aim for 2:1 or better - reward at least 2x the risk. 50 entry, 55 target, 45 stop = 5 reward / 5 risk = 1:1 (poor). 50 entry, 60 target, 45 stop = 10 / 5 = 2:1 (good).

Example: stock at 100, target 120, stop 90. Reward = 20, Risk = 10. R:R = 2:1. Need win rate >33% to be profitable (1/(1+2) = 33% break-even). At 50% win rate: profitable. At 60% win rate: highly profitable. Lower R:R requires higher win rate; higher R:R can be profitable with lower win rate.

R:R + win rate = expected value: EV = (Win% × Reward) - (Loss% × Risk). 50% win rate, 2:1 R:R: EV = (0.5 × 2) - (0.5 × 1) = +0.50 per 1 risked. Positive EV = profitable strategy. Most successful traders combine: high R:R (2:1+) with moderate win rate (40-60%). Strategies needing 70%+ win rate (low R:R) rarely survive long-term.

Quick example

With entry price of 100 and target price of 120 (plus stop loss of 90), the result is 2.00:1. Change any figure and watch the output shift — it's often more useful to see the pattern than to memorise the formula.

Which inputs matter most

You enter Entry Price, Target Price, and Stop Loss. Not every input has equal weight. Flip one at a time toward extreme values to feel which ones move the needle most for your situation.

What's happening under the hood

R:R = (target - entry) / (entry - stop). Break-even win rate = 1/(1 + R:R). The formula is listed in full below. If the number looks off, you can retrace the calculation by hand — that's the point of showing the working.

Using this well

Treat the output as one point on a wider map. Run it three times — a pessimistic case, a central case, and a stretch case — and plan against the pessimistic one. That habit alone separates people who stick with an investment plan from those who bail at the first wobble.

What this doesn't capture

Steady-rate math ignores real-world volatility. Actual returns are lumpy; sequence-of-returns risk matters most in drawdown; fees and taxes drag on compound growth; and behaviour changes in drawdowns can reduce outcomes below the projection. Treat the number as one scenario, not a forecast.