Calculator
3.00R
Tool
Risk-reward calculator
Calculate an educational risk-reward ratio from entry, stop, and target prices. Use the output for paper-trading review, not as financial advice.
Formula
Risk is the distance from entry to stop. Reward is the distance from entry to target. Risk-reward ratio is reward divided by risk.
This is an educational calculation. It does not account for fees, slippage, liquidity, or probability.
How to interpret risk-reward in a paper workflow
Risk-reward is a planning number, not a quality score by itself. A paper trade with a 3R target still needs a valid thesis, realistic invalidation, adequate liquidity assumptions, and a reviewable setup. The calculator is most useful when it is connected to a checklist and journal rather than used as a standalone green light.
Before a paper entry, use the calculator to compare the distance between entry and stop with the distance between entry and target. If the stop is so tight that normal volatility would invalidate the trade immediately, the paper setup may be poorly framed. If the target is far away without a clear thesis, the ratio may look attractive while the plan remains weak.
After the paper trade closes, record the planned ratio and the actual outcome in the AI trading journal. Over time, this shows whether an agent is choosing realistic targets, whether it often moves invalidation after entry, and whether a high planned ratio actually leads to disciplined execution. The review matters more than the single calculation.
For agent workflows, risk-reward can become an explicit filter. For example, the agent can skip paper trades below a minimum planned ratio, but that filter should be paired with setup quality and risk controls. A minimum ratio cannot replace the risk review workflow.
Example risk-reward review
Inputs: A paper trade has an entry at 100, a stop at 95, and a target at 115. The risk is 5 points and the planned reward is 15 points, so the calculator shows 3.00R.
Review: The ratio looks clean, but the journal shows the target sits beyond a major resistance area. The trader does not treat 3R as proof. They ask whether the target is realistic for the setup being practiced.
Next action: The agent keeps the paper trade in the sample, but the post-trade review tags it for target realism. If similar trades keep missing extended targets, the rule may need a more conservative exit plan.
Use before entry
Check whether the planned stop and target create a ratio that matches the setup. If the ratio only works with an unrealistic target, the trade needs more review.
Use after exit
Compare planned ratio with actual behavior. Did the agent respect the stop, change the target, exit early, or hold past the invalidation?
Common interpretation mistakes
The most common mistake is treating risk-reward as a substitute for probability. A paper trade can show 5R on the calculator and still be a weak idea if the target is far beyond normal movement, the stop is inside ordinary noise, or the setup has no clear reason to continue.
Another mistake is changing the stop after the trade begins. If the paper agent moves invalidation to protect the ratio, the review should tag that behavior clearly. The calculator measured the original plan, not a revised plan created after the market moved.
A third mistake is comparing ratios without setup context. A low-ratio mean reversion test and a high-ratio breakout test may be practicing different behaviors. Record the setup type with the ratio so the journal can compare similar paper trades against each other.
Risk-reward also belongs before position sizing. Decide where the trade is wrong, calculate the ratio, then decide whether the size fits the paper risk limit. Reversing that order can make the stop serve the desired size instead of the actual thesis.
When the ratio is poor, the right answer may be to skip the paper trade. A skipped entry can be just as useful as a recorded entry because it proves the workflow can reject setups that do not fit the written plan.
Risk-reward calculator FAQ
What is risk-reward ratio?
It compares the planned reward from entry to target with the planned risk from entry to stop. It is a planning metric, not a prediction.
How should I use it in paper trading?
Use it before the simulated entry, then save the planned ratio in the journal so the post-trade review can compare plan with behavior.
Does a high ratio mean the trade is good?
No. The target may be unrealistic, the stop may be too tight, or the setup may be weak. Review ratio with thesis, probability, and risk controls.