Risk-Reward Ratio Calculator
Assess the viability of your trades.
Risk-Reward Ratio
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Evaluating Trades with the Risk-Reward Ratio
A key principle of successful trading is to ensure that your potential profits on a trade are significantly greater than your potential losses. The risk-reward ratio is a simple but powerful metric that quantifies this principle. By comparing the potential profit (the distance from your entry to your profit target) with the potential loss (the distance from your entry to your stop-loss), this calculator helps you quickly assess whether a trade setup meets your risk management criteria before you commit any capital.
Frequently Asked Questions (FAQ)
What is the risk-reward ratio?
The risk-reward ratio measures the potential profit of a trade relative to its potential loss. It helps traders assess whether a trade is worth taking. For example, a ratio of 1:3 means you are risking ₹1 to potentially make ₹3.
How is the risk-reward ratio calculated?
The ratio is calculated by dividing your potential profit by your potential loss. The potential profit is the difference between your entry price and your profit target. The potential loss is the difference between your entry price and your stop-loss.
What is a good risk-reward ratio?
Many traders aim for a risk-reward ratio of at least 1:2, meaning the potential profit is at least twice the potential loss. A ratio below 1:1 is generally considered unfavorable, as you are risking more than you stand to gain. However, the ideal ratio can depend on your trading strategy and win rate.
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