Risk/reward ratio in trading with the risk/reward indicator

The risk/reward ratio in trading applies to the principal that the greater the risk a trader makes, the greater the expected return. Using it allows traders to better manage their capital and risk of loss.

When using the risk/reward ratio, remember to divide the amount you stand to lose if your trade does not perform as expected (i.e., your risk) by the amount you would gain if it does (i.e., your reward).

Traders who use the risk/reward ratio in their day trading should understand that the lower the ratio, the larger the reward if the trade is in your favor. You can also determine how many losing trades you can have after one winning trade to break even. For example, a risk/reward ratio of 1:3 suggests that three losing trades will offset one winning trade. Flipping that concept around, you can stomach more losers after a winning trade if your risk/reward ratio is low.

Applications for risk/reward ratio

The NinjaTrader Ecosystem has several third-party providers who offer risk/reward ratio-based applications for futures traders, many of which are either free or available to test through a free trial. Some examples:

• One Click Risk/Reward Drawing Tool by Mas Capital Global Limited allows you to draw the risk/reward roulette tool at any point on a candlestick chart by clicking on the chart with the middle mouse button. This indicator allows you to speed up the drawing of the risk/reward tool on the chart by times, expanding on the functions of the trading platform.
• Drawing Tools: Anchored VWAP, Ray and Risk Reward by PureAlgo Capital is a developed set of drawing rools to assist you with trading, including Anchored VWAP, Risk Reward PA and Horizontal Line.
• Advanced Risk Reward Indicator  from the NinjaTrader Ecosystem User App Share Forum. This indicator helps you define your entry, stop and target (1 or 3) visually on the chart with the help of horizontal lines, calculating your potential P/L, unrealized P/L, risk/reward ratio, and contracts sizing per account size.

To learn more about risk/reward indicators in futures trading applications, and for full access to a growing library of other indicators plus market analyzer and SuperDOM add-ons and more, visit the NinjaTrader Ecosystem’s trading apps and services section.

How to Add 3rd Party App to NinjaTrader

To import your 3rd party app or add-on to NinjaTrader, simply follow these 3 steps: