How risk to reward is calculated
The R:R ratio is the unit reward divided by the unit risk:
- Long: R:R = (target − entry) ÷ (entry − stop)
- Short: R:R = (entry − target) ÷ (stop − entry)
Total ₹ risk and reward simply multiply the per-share risk and reward by the position quantity.
Required win rate
If your average winner is R times your average loser, the win rate at which the strategy breaks even is:
break-even win rate = 1 ÷ (1 + R)
So at 1:2 you need 33.3% wins, at 1:3 you need 25%, at 1:5 you need 16.7%. Aim 5–10 percentage points above breakeven so trading costs and slippage don't push you negative.
The 1% rule
Most professional swing traders cap risk at 1% of account equity per trade. With a ₹5,00,000 account that's ₹5,000 risk per trade — which is enough to take 20 consecutive losses before the account is down 18% (drawdowns compound less than they add). At 5% per trade, the same 20-trade losing streak takes you down 64%.
Position sizing
Once you know your stop loss distance, position size is automatic:
qty = (account × risk %) ÷ (entry − stop)
Use the calculator above with your real account and risk % — the "Risk as % of account" line will tell you whether your current quantity is over budget.
FAQ
Is a 1:1 R:R ever acceptable?
Only if your win rate is consistently above 50% — most discretionary traders aren't. For systems with high accuracy (mean-reversion algos, certain breakouts) 1:1 can work, but you have to actually measure your win rate before you trust it.
What about commissions and slippage?
Subtract them from your expected reward and add to your risk. A trade with 1:3 on paper might be 1:2.5 net of costs. Use the win-rate margin (5–10 percentage points above breakeven) to absorb this.
Why is my actual win rate lower than the calculator says I need?
Two common causes: (1) you exit winners early before they hit target, lowering your true average reward; (2) you let losers run past the stop, pushing average risk up. The R:R you plan is rarely the R:R you realise — track both.
Does the same maths work for options?
For straight long/short option positions, yes — replace per-share with per-contract premium and multiply by lot size. For multi-leg strategies (spreads, iron condors), the max-loss / max-profit numbers are different from a stop-and-target setup; this calculator isn't the right tool.