Risk Reward Indicator
The Risk Reward Indicator for MT5 enables traders to determine the level of exposure to risk and its reward.
The key to becoming a successful, profitable trader is in risk management. The best way to manage trading risk in forex is applying the Risk to Reward Ratio (RRR).
As important as this risk management is, many traders have difficulty in calculating it. This difficulty is eliminated using the Risk Reward Indicator (RR).
The Foundation of the Risk Reward Indicator
The Risk Reward Indicator enables traders to determine the level of exposure to risk and its reward. This indicator is displayed on the main chart as a ratio as seen in the diagram below:
From the EUR/USD H1 chart above, the RRR as displayed by the indicator is 1:3.76. The first number (1) is the risk, while the second number (3.76) is the reward.
In addition to this, the indicator displays three horizontal lines. The first line is the take-profit price level (green horizontal line). The second line is the stop loss price level (red horizontal line). Finally, the third line displayed on the chart (blue horizontal line) is the entry price.
The RR Indicator for MT5 is calculated using the following method:
The risk is the differences between the entry and the stop loss in trade.
For long trades, risk = Entry price – SL
For short trade, risk = SL – entry price
The reward is the difference between the entry and TP.
For long trades, reward = TP – Entry
For short trades, the reward is Entry – TP.
The RRR is the reward divided by the risk (reward/risk).
For example, if you entered EUR/USD long trade at 1.07985, and you set your SL and TP to 1.07922 and 1.08222 respectively, since it’s a buy trade, your risk is
Risk = Entry – SL = 1.07985-1.07922 = 0.00063
Your reward is
Reward = TP – Entry= 1.08222-1.07985 = 0.00237
Risk is 0.0063 and the reward is 0.00237
RRR = reward/risk = 0.00237/0.0063 = 3.76
Therefore, RRR = 1:3.76.
With this indicator, traders can differentiate between good and bad trades. Good trades will have at least a Risk to Reward ratio of 1:2. Bad trades on the other hand, will have RRR value less than 1:2.
For 1:2 RRR, it means if you take a risk of 1, your profit will be 2 times your risk. Also, 1:3 means if you take a risk of 1, your reward will be 3 times your risk. This means if your SL is 30 pips, your profit will be 3×30 pips, that’s 90 pips for 1:3. For 1:2 if your SL is 30 pips, it means your profit will be 30×2 = 60 pips.
That’s why this indicator is so important to analyze your risk to reward ratio before triggering any trade.
Conclusion
The Risk Reward Indicator for MT5 is a very useful tool for all forex traders. This indicator enables traders to determine the level of risk exposure to risk if the price moves against them, as well as it’s reward if the price moves in their favor.
You must be logged in to post a review.
Copyright 2025
Reviews
There are no reviews yet.