Risk/reward & drawdown calculator

The arithmetic behind a trading plan. Enter the stop and the target to get the reward-to-risk ratio and the win rate you need to break even; add your win rate to see expectancy, the losing streak to expect and how much a drawdown costs to recover.

Fill in the form to see the result.

Educational arithmetic on the figures you enter. Example prices are placeholders, not live quotes; contract sizes and pip definitions vary by broker. Not financial advice.

How it works

Four formulas cover most of what a trading plan needs:

reward : risk (R) = target distance ÷ stop distance break-even win rate = 1 ÷ (1 + R) expectancy (in R) = win rate × R − loss rate recovery gain = drawdown ÷ (1 − drawdown)

Expectancy is what a trade is worth on average. Positive means the plan makes money over many trades, negative means it loses however good single trades look. Multiply by the money risked per trade to get an expected result per trade, and by the number of trades for a horizon.

Zone + layers

For a layered entry the ratio is worked out the journal way: every filled layer's pips to the target divided by every filled layer's pips to the stop, with the stop beyond the zone end and the target from the last filled layer. A deeper zone with more layers usually improves the ratio because later layers sit closer to the stop and further from the target.

Losing streaks

Even a 60% system loses five in a row now and then. The estimate here is log(trades) ÷ log(1 ÷ loss rate), a standard approximation for the longest run to expect in a sample; treat it as a floor, not a ceiling, and size so that the streak does not take you past a drawdown you cannot recover from.

Worked example: gold

Stop 100 pips, target 200 pips, win rate 45%, $50 risk per trade (1% of $5,000):

R = 200 ÷ 100 = 2.0 break-even win rate = 1 ÷ (1 + 2) = 33.3% expectancy = 0.45 × 2 − 0.55 = +0.35 R → +$17.50 per trade 100 trades ≈ +$1,750 longest losing run ≈ log(100) ÷ log(1 ÷ 0.55) ≈ 8 trades → −$400 (−8%)

A 20% drawdown needs a 25% gain to recover; 50% needs 100%. At +0.35 R and 1% risk the plan earns about 0.35% per trade, so the 25% recovery takes roughly 72 trades. That is the number that argues for small risk per trade.

FAQ

Questions traders ask

What is a good risk-to-reward ratio?

There is no single right ratio; what matters is the pair of ratio and win rate. 1:1 needs more than 50% winners to profit, 1:2 needs more than 33%, 1:3 more than 25%. A plan with 1:3 and a 30% win rate is positive; one with 1:1 and 45% is negative. Take your real win rate from your journal and check it against the break-even figure for the ratio you trade.

Why does a 50% loss need a 100% gain to recover?

Because the gain is measured on the smaller balance. Lose 50% of $1,000 and you have $500; to get back to $1,000 you must double the $500, a 100% gain. The recovery table shows the same asymmetry at every level: 10% needs 11.1%, 20% needs 25%, 30% needs 42.9%. It is the mathematical reason for keeping single-trade risk small.

What win rate do I need at 1:1?

Above 50%, and in practice a few points more to cover spread and commission. At 1:1 with a 50% win rate the expectancy is zero before costs; at 55% it is +0.10 R per trade. Higher ratios lower the bar: 1:2 breaks even at 33.3%, 1:3 at 25%.

What does expectancy mean in trading?

Expectancy is the average result per trade over many trades, expressed in R (multiples of the amount risked) or in money. It is win rate × average win minus loss rate × average loss. A system with +0.35 R expectancy and $50 risked earns about $17.50 per trade on average; over 100 trades, about $1,750, with streaks and drawdowns along the way.

How long a losing streak should I expect?

Longer than feels reasonable. With a 45% win rate, about eight losses in a row are likely somewhere inside 100 trades, and ten inside 500. The estimate is statistical, not a limit: a streak of twelve can happen. Size so that the expected streak at your risk per trade leaves a drawdown you can recover from, which is what the recovery table shows.

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