Risk-Reward Calculator
Calculate your risk-reward ratio, total rupee risk, and capital exposure for any trade. Built-in 2% rule alert. Works for stocks, futures, and any directional position.
How many units to buy based on capital and risk rule — independent of qty entered above.
Why Risk-Reward Is the Most Important Number You'll Calculate
Most retail traders obsess over win rate. They want to be "right" most of the time. This is why most retail traders lose money. Markets don't reward being right — they reward asymmetric payoffs. A trader with a 40% win rate and 1:3 R:R will outperform a trader with a 70% win rate and 1:0.5 R:R every single time over a sufficient sample size.
Risk-reward is the ratio of how much you stand to gain versus how much you're willing to lose on a trade. If you risk ₹1,000 to make ₹3,000, your R:R is 1:3. Calculate this before entering — never after, never to justify a trade you've already taken.
The Math That Matters: Expectancy
This single formula determines whether you make money over time. Plug in your actual stats — not what you wish they were:
- Positive expectancy means you make money over a large sample of trades. Stay the course.
- Negative expectancy means no amount of discipline saves you. The system itself is the problem — change it.
- You need at least 50–100 trades before this number is statistically meaningful. Don't panic over a 10-trade losing streak if the long-term math is positive.
The 2% Rule — Why It Matters
The 2% rule is simple: never risk more than 2% of your total trading capital on a single trade. The calculator above flags this automatically.
The math behind it is brutal. Drawdown recovery is non-linear:
| Drawdown | Return Needed to Recover |
|---|---|
| 10% | 11% |
| 25% | 33% |
| 50% | 100% |
| 75% | 300% |
| 90% | 900% |
Lose half your account, you need to double what's left to break even. The 2% rule keeps your worst losing streaks survivable. Ten losses in a row at 2% each = 18.3% drawdown — recoverable. Ten losses in a row at 10% each = 65.1% drawdown — almost permanent damage.
Position Sizing — How to Use This Calculator
- Decide your stop loss before entry, based on technical structure (below support, above swing high, etc.) — not based on what feels comfortable.
- Decide your target based on the next significant level, not on greed.
- Enter the calculator above. Check the R:R ratio — if it's below 1:2, look for a better trade.
- Check "Capital at Risk" — if it shows above 2%, reduce quantity until it's within range. Never widen the stop to fit the position.
- Only after all four numbers look right, take the trade.
Common Mistakes
- Increasing position size after a winning streak (revenge confidence) — markets don't care about your last trade.
- Calculating R:R after entry, working backward to justify the trade.
- Treating SL as a suggestion. If you "feel" the stop is wrong, you didn't pick the right level — fix the analysis, not the stop.
- Position sizing based on total capital instead of risk. A ₹1 lakh position is meaningless without knowing the SL distance.
Frequently Asked Questions
What is a good risk-reward ratio for trading?
Most disciplined traders aim for a minimum of 1:2 — meaning the potential reward is at least twice the risk. Trend followers often target 1:3 or higher. Anything below 1:1.5 requires a high win rate to be profitable, which is hard to maintain consistently.
What is the 2% rule in trading?
The 2% rule states that you should never risk more than 2% of your total trading capital on a single trade. With ₹5,00,000 capital, that limits your maximum loss per trade to ₹10,000. This rule is the most reliable defense against blowing up your account during a losing streak.
How do I calculate position size based on risk?
Position size = (Capital × Risk%) ÷ (Entry Price − Stop Loss Price). For example, with ₹5,00,000 capital, 1% risk, entry at ₹1,000, and stop at ₹980, your size = (500000 × 0.01) ÷ 20 = 250 shares.
Why does win rate matter less than R:R ratio?
Expectancy = (Win% × Avg Win) − (Loss% × Avg Loss). A 40% win rate at 1:3 R:R yields positive expectancy. A 70% win rate at 1:0.5 R:R yields negative expectancy. The math always wins — focus on R:R first, then improve win rate within that framework.
Should I move my stop loss to lock in profit?
Trailing stops are a valid technique once a trade is in profit beyond your initial risk (typically 1R). Moving stops to lock in profit is fine. Moving stops in the other direction — widening them when a trade goes against you — is the single most common reason traders blow up.
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Disclaimer: Educational tool. Not advice. Trading involves substantial risk. See full disclaimer.