MT5 Risk Reward Ratio

Learn more about the importance of Risk to Reward Ration in trading and how to get it easily in Metatrader.

Download the FREE MT5 Risk Reward Ratio Indicator and see the risk to reward ratio of your trade directly on chart.

How to see Risk Reward Ratio in MT4 and MT5

What Is Risk Reward Ratio

First of all, you could hear Risk Reward also in the for of Risk/Reward or in the short R:R or RRR.

Risk Reward is a concept that is used mostly in investing, trading and gambling, but since this website is dedicated to trading we will focus more on that area.

The Risk Reward Ratio is the expected return from a trade, investment, or bet, related to every unit of risk, and it is indicated with a decimal number.

RRR Ratio is one of the main metrics traders use to evaluate trading strategies, or to consider taking the next trade.

RRR is an important part of Risk Management when trading several instruments, including:

• Forex
• Indexes
• Commodities
• Stocks
• Cryptocurrencies

In the coming section you will see how to calculate the ratio but in the meantime it is important to understand that R:R can make the difference between taking a trade or wait for a better opportunity.

Formula To Calculate Risk Reward Ratio

The concept of RRR can be difficult to understand without an example and the formula to calculate it.

The first thing to understand is Risk and Reward.

Every investment, trade, or bet, should have a defined Risk and a defined Reward.

RISK is the monetary amount that you can lose.

REWARD is the monetary amount that you can earn.

The Risk to Reward Ratio is the division of REWARD by the RISK.

RISK REWARD RATIO = REWARD / RISK

We can expand on this definition through examples.

Assuming you are an investor, you purchase one stock when the value is 100$ and you decide you will either sell it at 300$ or ride it all down to zero $. Ignoring the dividend, you are risking 100$ (RISK) to have a profit of 200$ (REWARD). In this case you would have a R:R Ratio of 200 / 100 = 2 or also commonly displayed as 2:1 because you have a reward of 2 for each 1 unit of risk.

Let’s see for a Forex Trader, you are planning to short EURUSD at 1.0000 and you want a stop loss of 20 pips (RISK) and a take profit of 10 pips (REWARD). The calculation is quite easy, the R:R is 10:20 = 1:2 = 0.5 so your reward would be half pip for each pip of risk.

Lastly in the case of gambling, let’s say you are playing a game with a dice, you lose 10$ if the dice rolls to an even number and win 10$ otherwise, that comes to a R:R Ratio = 10 / 10 = 1:1 = 1.

Risk Reward VS Winning Rate

One of the most frequent questions coming up about R:R Ratio is “What is the Best Risk Reward Ratio?”

There is no right or wrong, good or bad, Risk Reward Ratio. The profitability of an event (trade, investment, bet) depends by the combination of the R:R of that event together with the probability of that event is going to happen.

With this definition, you now know what is R:R but we need to define what is the probability of the event happening.

In Forex, and Trading in general, the probability of a trade reaching Take Profit is usually found through Backtesting.

Although future results are not guarantee from past performance, it gives at least an indication of what we “could” expect.

We call the probability of a trade reaching Take Profit (TP) Win Rate, which it is the percentage of trades that hit TP out of all of the trades. It should also be clear that usually the Win Rate is related to a specific strategy.

You can combine the information related to R:R and Win Rate to understand if a strategy is expected to be profitable or not.

Examples Of R:R and Win Rate Combination

Assuming a fixed position size you can see in the following table the profitability of different strategies with different Win Rates and R:R Ratio.

Assuming a fixed risk of 1000$ per trade we can see how two strategies would perform.

Strategy 3 would win 1000$ x 0.5R:R = 500$ per winning trade, hence 50% of the time. At the same time it would lose 1000$ (RISK) the other 50% of the time, meaning in 2 trades it would have lost 500$ or in average 500/2 = 250$ lost per trade. Profitability would then be -250$/1000$ = -0.25.

Strategy 12 would win 1000$ x 1.5R:R = 1500$ per winning trade, hence 75% of the time (3 trades out of 4). At the same time it would lose 1000$ (RISK) the other 25% of the time, meaning in 4 trades it would have earned 3500$ or in average 3500/4 = 875$ won per trade. Profitability would then be 875$/1000$ = 0.875 (0.88 rounded).

There are more aspects that should be considered when studying R:R Ratio, Win Rate and Profitability. At this stage we covered some of the fundamental definition and formulas.

One note that we can add is around Smart Money Concept trading.

Smart Money Concept is a type of trading style that is increasing in popularity and tries to emulate how Smart Money (big investors and institutions) operate.

In the area of Smart Money Concept the RRR is usually higher than 2.

You can see the calculation isn’t hard but when you are trading it’s not ideal having to move between applications.

Keep reading to find some tools that could help you make your trading easier.

What Is MT5 Risk Reward Ratio Indicator

Risk Reward Ratio Indicator is a tool for the Metatrader 5 Platform that allows you to see the risk to reward ratio directly on chart.

If you want to learn more about Risk Reward Ratio you can find more information in this page.

Risk to Reward Ratio, also commonly known as RRR or R:R, is a popular metric used in trading risk management.

Usually you would need to calculate the risk to reward based on your Stop Loss and Take Profit, this indicator makes your trading easier.

You can load the RRR Indicator directly in the MT5 chart and easily set your Stop Loss (SL) and Take Profit (TP).

Once SL and TP are set the indicator directly calculates and shows you the Risk Reward Ratio.

How Does Risk Reward Ratio Indicator Work?

Once you download and install the MT5 Risk Reward Ratio Indicator you can see the value directly on screen.

Select if the trade is a Long or a Short, drag the Stop Loss and Take Profit where you are planning and see the calculated Risk Reward Ratio.

The Risk Reward Ratio indicator can be used in Metatrader for:

• Forex Pairs
• Indices
• Stocks
• Commodities
• Everything

Risk Reward Ratio In Tradingview VS Metatrader

Tradingview.com is one of the most popular charting platforms available out there and I definitely recommend to check it out.

Tradingview has it’s own way of showing the Risk Reward Ratio in its charts.

With the MT5 Risk Reward Ratio Indicator you can have a similar view of RRR to what Tradingview shows.

MT5 Risk Reward Ratio Installation

To install the Risk Reward Ratio Indicator:

• Download the indicator file
• Open Metatrader
• In Metatrader go in File > Open Data Folder
• Open the MQL4 folder in MT4 or MQL5 folder in MT5
• Copy the indicator file in the Indicators Folder
• Restart Metatrader, or right click the folder containing the tool in Metatrader and select “Refresh”
• Drag the tool into the chart where you want to load it

For any feedback or assistance needed please reach out through the Contact Form.

Download Now