Risk Reward Ratio Indicator Guide for MT4/MT5
Risk Reward Ratio MT4 indicator help the traders is to minimize the risk and multiply gains on every transaction they made. In fact, the MT5 risk reward ratio indicator was created by traders who know very well the forex, the crypto, and the CFD markets to achieve their goals and that of others. In this course, we will examine in detail the risk-reward ratio Tradingview indicator and give examples of how to compute it, so as to understand it well. The indicator is Free Download via Finansya.
Risk Reward Ratio Indicator FAQ
What Is the Risk-Reward Indicator ?
The risk reward ratio Indicator is a professional Indicator. Indeed, it is not like the other technical tools that help traders to identify entries and movement of the trade. Therefore, it helps to know whether the risk they are taking is worth the profit projecting or not. Moreover, this strategy enables Forex traders to calculate their level of risk exposure and their reward before the opening of the trade. So they can make their decisions efficiently. let’s say, for example, you enter a trade with a strong forex currency, it will lead to a high reward.
How does it work?
The risk reward indicator shows three horizontal lines. The first line represents the take profit (green line). The second line represents the stop loss (red line). And The third line represents the bid price (gray horizontal line). Therefore, these lines help Forex traders to better understand the trade and to make the right decision quickly. In fact, the indicator measures the distance between the TP and the open, and the distance between the open and SL. Thus, in a buy trade, the indicator substructs the TP price level from the open price level and the open price level from the SL price level. and the inverse in a sell trade.
How to calculate the Risk and Reward?
you can calculate the risk-reward ratio using the following method:
The first step you calculate the Risk:
- Long trades: Risk = Entry price – Stop loss
- Short trades: Risk = Stop loss – Entry price
Second step you calculate the Reward:
- For long trades: Reward = Take profit – Entry price
- For short trades: Reward = Entry price – Take profit
Third step, you calculate the RRR indicator
Risk Reward Ratio = Reward / Risk
For example, if you enter a long trade with a USD/JPY equal to 113.51, and you set your take profit and stop loss to 116.98 and 110.33 respectively.
Risk = 113.51 – 110.33 = 3.18
Reward = 116.98 – 113.51 = 3.47
Then, Risk Reward Ratio = 3.47 / 3.18 = 1.1
Example of calculation
take an example of a CFD trader entering a long trade with USD/EUR equal to 1.157, and setting his TP to 1.169 and his SL to 1.153 as shown in the graph below (from the tradingview platform). However, the trader wants to know if this CFD trade is profitable or not, so he decides to calculate the RRR to know exactly how much he will gain according to the level of risk taken.
Indeed, in the first step you should calculate the level of risk:
Risk = Entry – SL = 1.157 – 1.153 =0.004
The second step should calculate Reward:
Reward = TP – Entry = 1.169 – 1.157 = 0.012
The third step should calculate the RRR indicator:
RRR = 0.012 / 0.004 = 3
Therefore, RRR = 1:3
In the last step we should interpret the results obtained to make a decision :
The RRR is equal to 1:3 so it is a good trade, if the trader goes into this CFDtrade he will gain three times the risk he took.
Download Risk reward ratio indicator for MT4
Risk reward ratio indicator in MT4 is an extremely simple and effective Metatrader 4 tool that will help Forex traders to plan out and visualize their risk and reward on your MetaTrader 4 chart that is no longer visible to the naked eye, with the help of the three horizontal lines displayed in your MT4 platform. Therefore, according to this, we can adjust your technique. Moreover, we can also move the SL or the TP levels to know where your risk reward will be on each trade. This tool is the best indicator for the forex market to manage risk during trading. This is an image from the MT4 platform that offers you the risk-reward ratio indicator.
Download Risk reward ratio indicator for MT5
MT5 Risk reward ratio indicator helps CFD traders of Metatrader 5 to know their position in the trade easily (profit and loss). Furthermore, it marks the potential trade entry, the stop loss, and the take profit in three colored lines, which we can make a decision according to them, whether to enter the CFD trade or not. In addition, by employing this MT5 indicator we will gain time and energy because, with a simple click, we can move the price, move lines, and close one or all positions in our chart in MetaTrader 5.
Conclusion
Risk management is very important to know your position lot size and how to manage it, therefore, you can use the risk reward ratio indicator in your Tradingview or Metatrader platforms which can help you to calculate your risk and reward, but a lot of people lose their money because they didn’t understand the RRR indicator MT4. Maybe they only want to gain without losing anything. In fact, there is no trading in the world that doesn’t record a loss. So all you need is to understand well the Forex market and how to use the risk-reward ratio MT5.
Key takeaways
- The risk-reward ratio indicator is a technical indicator in MetaTrader that helps Forex traders to know their exact position in trades.
- This indicator calculates the risk and reward in each transaction to help Forex traders to make the correct decision quickly.
- It displays three horizontal lines on the chart which are; the take profit price level, the open price level, and the stop-loss price level in Tradingview.