This risk reward calculator spreadsheet will help you see what you need to achieve to hit your profit targets with whatever strategy you use when trading. You can see what happens when you have a winning or losing streak to help prepare yourself for what is likely to happen to your account as you trade any instrument or strategy.

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Video Transcript

This video is going to be a quick overview and a look at the Risk Reward Calculator Spreadsheet. This is a free spreadsheet which basically gives you an overview of how to calculate the risk reward ratio that you need to achieve a particular financial target when you’re trading based on the strike rate or the win rate of your strategy. So let’s have a quick look at the spreadsheet. I’m going to go through the two tabs on the spreadsheet in a little bit more detail to show you how to use it and what information you can glean from this spreadsheet. The risk reward calculator tab here will give you a financial outcome based on the risk reward ratio of your trades and the strike rate of your strategy. The trade outcome graph will show you what the probable equity curve of your trading will be based on wins and losses and your risk reward. So we’ll go through them both they both got really useful insights they’ll give you into your trading and they’ll help you to stick hopefully to your profit and loss targets and your TP and your stop loss that you set on your trades a lot more when you know the outcome and the probabilities of your strategy. Now it doesn’t matter what strategy you’re using, this spreadsheet will work on any strategy out there.

The things you need to know about your strategy are roughly what the strike rate is of the strategy and what the potential risk to reward it can give in a typical trade is going to be, okay? So there’s no point in targeting a 5 to 1 risk reward ratio when you’re scalping the market and you’re in and out within a couple of minutes. It’s unrealistic and a lot of the time you just can’t do that. If you’re swing trading and you’re taking long trades on H4 or daily time frames it’s easy to get a 5 to 1 risk reward. So when you know the strike rate of your strategy or the win rate of your strategy. It’s very simple to figure out how much money you can make based on what risk rewards you can use in that particular strategy.

So just to give you an example, we’ve got the win rate here down the left-hand side, and we’ve got the risk reward ratios across the top here. We’ve got input, as you can see it says here, enter figures in the grey cells only. We’ve got inputs here, so you can enter your starting balance, in this case I’m going to put 10,000, and how much you risk per trade. So we’re going to risk what most traders average risk per trade is, which is 1%. And we’re going to put in how many trades roughly per month we’re going to take. And again, if you’re day trading and you’re taking three, four, five trades per day. This figure is obviously going to be higher than if you’re a swing trader and you’re analysing the markets in an evening and just looking to take one or two trades a day. So I’m just going to leave this at 30 for the moment. So let’s say, for example, we’re taking roughly one to two trades per day, 20 trading days in a month.

Okay, we can see that risk per trade is a hundred dollars, pounds, whatever you want to call it, based on your starting balance and your risk. If you put a 2 in there, you’ll see that it will automatically calculate your risk in 200 per trade. So let’s put one back in there. Okay, so to start off with, let me quickly discuss strike rate. Strike rate is something that you have no control over, and this is something that a lot of people don’t really understand. So on an average month you may have a 50% strike rate on your strategy. The following month you’ll achieve a 70% strike rate. The month after that you’ll have a bad month and you’ll achieve a 40% strike rate for example. So it’s very important that you understand that the strike rate or the win rate of your strategy isn’t something that you have control over on a daily or a weekly or a monthly basis.

It’s going to fluctuate a lot. But you will know roughly what it is. So if you’ve got trading history and you’ve been trading a strategy for a number of weeks or months, you can look back and see roughly what your average risk to reward ratio is. Okay. So So for example, I know that we’ve had months, well I’ve personally had months of 40% and sort of 38 to 40% strike rates and I’ve had amazing months where I’ve been up in the 75% range. So that’s the range that I hit on a monthly basis. So you can see that I can’t guarantee what I’m going to make per month because I’ve got no idea what my strike rate is going to be this month. There’s lots of things that determine the strike rate of the system. You cannot control this okay but what you can control is the risk reward that you enter when you take any trade all right so for example if I have a range of say 40 to 70 percent as my strike rate and a 1.5 risk the reward on every trade I take as a minimum okay I’m going to make somewhere between break even and $2,250 per month on my $10,000 account with 1% risk.

If I was to up my risk reward on every single one of my trades I would say let’s go to 2 I would make somewhere between $600 and $3,300 in a month. It all depends on whether I have a bad month or a good month. Again, I’ve got no control over this, but I have got control over the risk reward of my trades. So what I can say is, rather than taking every trade my indicator or my strategy or my system gives me, I’m only going to take trades where I can get a minimum of a 2 to 1 risk reward on them. So scrap the trades that give me 1.5, 1.8, I’m only going to give 2s. You might say I’m only going to take really good trades that are going to give me a 3 to 1 risk reward. In that case you’ll be looking at making somewhere between 1800 and 5400 a month. Your strike rate will probably drop a little bit if you go up to a higher risk reward, but the rewards will be greater so you’ll probably take less trades but you will be more profitable. So Okay, so that’s how you use the spreadsheet. You can see if you put in different figures up here $10,000 account I’m risking 0.5 on a trade taking 50 trades in a month I’m risking $500 a trade and you see now the win rate Strike rate win rate column gets a lot longer because we’re taking a lot more trades. All right, so So hopefully this shows you how you can calculate your risk reward ratio based on a rough strike rate that you know on any strategy out there.

The reason you use this spreadsheet is to set financial goals for yourself. So let’s say for example as a trader to make two and a half thousand dollars per month. I know my strike rate is somewhere in the region of 40 to 70%. To make two and a half thousand dollars a month I know that if I’m going to go with a 1.8% risk reward I need to hit a 54% strike rate and if I go with a 2 to 1 risk reward ratio I need a 50% strike rate. Okay so you can see how you can use this spreadsheet to manage your expectations and every time you take a trade if you know for a fact that you can get a 50% strike rate every single month and you have consecutively for the last three months you can just basically go right I’m not going to take any trades under 2 to 1 risk reward because I know that’s what I need to earn a month or you could say I want to earn 5,000 this month so I’ll go for 3 to 1 risk reward but what you’ll probably find is because you’re going for higher risk rewards your strike rate will drop because it won’t quite get to your targets and you’ll have a few more losses.

But even so, higher risk reward, even if you drop down 10% on your strike rate, is still going to make more money than if you had a 50% strike rate with a 2 to 1 risk reward. So have a play around with this spreadsheet, put some different figures in, use some different numbers of trades per month to see what impact it has on the spreadsheet. Hopefully that will help you calculate the risk reward you need to be taking on your trades based on a rough strike rate. Or if you’ve got a strategy, another way you can use this is if you’ve got a strategy which has a fixed stop loss and TP, so you might be trading in EA which I wouldn’t recommend, had a TP of 2 to 1 and a risk reward of 2 to 1 on every single trade that this EA took for example you know that that column is the only column you’re going to be looking at so you can calculate what you need to get the strike rate or the win rate of that EA up to to actually make a profit.

So there’s lots of ways you can use a spreadsheet but basically it just helps you manage your expectations of what you’re gonna make in the market and allows you to set financial goals and understand what you need to achieve from a risk reward ratio and a strike rate ratio for your strategy to make money in the market. One other thing you can use this spreadsheet for is managing expectations of realistically what you can make as a trader. So many people out there I see put $1000 into an account and expect to make $1000 a month. So let’s have a quick look at what you’ve got to do.

Let’s say you’re risking 2% on your account which is way higher than you should be with $1000 account. To make $1000 a month you’ve got to have a risk reward ratio of 2 to 1 and a 90% strike rate. Show me a system out there that’s got a 90% strike rate of 2 to 1 and I’ll snap your arm off and give you a million pound for it. Doesn’t exist. You’re not going to hit that. All these EAs out there that say they’ve got a 90% strike rate, they’ll be scalping one or two pips out the market and using no stop loss or using a negative risk reward ratio which at some point will fail.

So you can use this to see realistically what the potential of your balance is going to be as well based on the risk that you are willing to take in the market. So listen up on that spreadsheet, we’ve had a good look through that. Ok so let’s have a look at the trade outcome graph. I love this spreadsheet because it’s something that shows you what’s going to happen in the real world while you’re trading. What I’ve got it set up at the moment as is the perfect 50% strike rate with an even win-loss, win-loss, win-loss, win-loss and that is exactly how we would love our equity curve to look with a 2 to 1 risk reward ratio, 1% risk on a $10,000 account. Every single month we’re going to pull in $1,500 with a 50% strike rate. Brilliant. That in realistic terms is not what happens as we know in trading.

So what this will help you understand is what the potential drawdown you could go through with your strategy is going to be. So realistically, the reason people give up their strategies is because they have a couple of winners, make a bit of money, then get five losers in a row and think the strategy is rubbish and they throw it away. But what they don’t understand is that those five losers are just part of this win rate and the next five are going to be winners. So this will plot a graph to show you exactly what that’s going to look like in the real world. So let’s say for example you started trading tomorrow with the breaker trader strategy and I’ve told you I can achieve a 40 to a 70% strike rate so let’s say on average we’re going to make 50% a month.

It’s probably a little bit higher than that, in fact it is higher than that, but let’s go with 50% it’s nice and easy. But what happens is you fully understand the strategy, you set up a new account, you go out there and you take your first trades and what happens is you get a loss, a loss, a loss, a loss, a loss, a loss. Okay, so you’ve got six trades in a row losing. And what you’re seeing is your balance has just dropped big style down to $9,400. What are you gonna do? You’re probably gonna look at it and chuck the strategy away and say, ah.

But what would have happened is the next three trades would have been winners, and you’d have seen yourself come back to break even. You’ll be like, oh okay so I’ve had six losers, three winners and I’m actually back to square one. Brilliant. Okay then you have a loser, another loser, then you have five winners on the trot. Look what’s happened to the graph. All of a sudden we’re $700 in profit halfway through the month or three quarters of the way through the month. Absolutely fantastic. Our strike rate at the moment is only 47% so let’s put another couple of winners in, let’s see we have another couple of losers there and we ended the month strong with a nice profit for a final loss. So we’ve made $11,500, our equity curve is going up but you can see that you’re going to have streaks where you’re going to lose, streaks where you’re going to get depressed because your account is going into drawdown but overall in the month you might have a flat point, a little spike, another drop, another spike.

You’ve just got to accept that this strike rate is not going to be made up of win, loss, win, loss, win, loss. Again this spreadsheet helps you to understand how your winning and losing rates could happen. Equally, let’s say we have a fantastic month and we get a 63% strike rate. Now, we’ve made 12,700 profit and we’ve got a lovely equity curve that never actually touched drawdown at all. Okay, so hopefully you can understand how to use this spreadsheet. You can play around with these figures, say you go to a 2% risk on a 1.5% risk reward again the graph will just adjust basically to show you what could potentially happen to your account depending on what strike rate you can hit what risk reward you can achieve okay.