Why do 90% of traders lose money? It's not because they don't know technical analysis. It's because they have poor Risk Management. They risk ₹5,000 to make ₹1,000. That is a recipe for disaster.
The secret to becoming a profitable trader is not "Winning Every Trade", but having a solid Risk Reward Ratio (RRR).
Guide Highlights:
1. What is Risk Reward Ratio?
It is a simple comparison between how much money you are willing to lose on a trade (Risk) versus how much you hope to gain (Reward).
The Risk
The distance between your Entry Price and Stop Loss.
The Reward
The distance between your Entry Price and Target (Take Profit).
Example: If you risk ₹1,000 to make ₹2,000, your Risk Reward Ratio is 1:2. This is the gold standard for traders.
2. The Magic Math: Why 1:2 is King?
Many beginners think they need to win 80% or 90% of their trades to be rich. That is false. With a good Risk Reward Ratio, you can lose more than half your trades and still make money!
| R:R Ratio | Win Rate Required to Breakeven | If You Win 50% Trades? |
|---|---|---|
| 1:0.5 (Bad) | 67% | LOSS |
| 1:1 (Okay) | 50% | No Profit / No Loss |
| 1:2 (Good) | 33% | BIG PROFIT |
| 1:3 (Excellent) | 25% | HUGE PROFIT |
Look at the highlighted row. If you maintain a 1:2 Ratio, you only need to be right 33% of the time to not lose money. If you are right 50% of the time, you will make a fortune.
3. How to Calculate Manually?
Before you enter a trade, you must calculate this.
Risk = Entry Price - Stop Loss
Reward = Target Price - Entry Price
Ratio = Risk / Reward
4. How to use our Risk Reward Calculator?
In a fast-moving market, you don't have time for manual math. Use our tool to make instant decisions.
- Enter Entry Price: The price you want to buy at.
- Enter Stop Loss: The price where you will exit if wrong.
- Enter Target: The price where you will book profit.
The tool will instantly tell you the ratio (e.g., 1:2.5).
Rule: If the ratio is less than 1:1.5, DO NOT TAKE THE TRADE.