Formula
Risk = |Entry − Stop-loss|
Reward = |Target − Entry|
Ratio = Reward ÷ Risk
Break-even win rate = 1 ÷ (1 + Ratio)
Entry ₹1,000, stop ₹960, target ₹1,100: you risk ₹40 to make ₹100, a ratio of 1 : 2.5. You only need to win about 29% of trades like this to break even.
The ratio and the win rate go together
A high ratio is easy to set on paper. What matters is whether price reaches the target often enough. A 1 : 3 trade that almost never hits its target loses money; a 1 : 1 trade that wins 60% of the time makes money.
Frequently asked questions
What is a good risk-reward ratio?
Many traders look for at least 1 : 2, but the right ratio depends on how often your setups reach the target.
What is the break-even win rate?
The share of trades you must win so that wins and losses cancel out, before charges.
Does this include charges?
No. Charges raise the win rate you need, especially for small targets.