Risk to Reward

Last modified 12:08, 4 Apr 2014

Risk to Reward Ratio

The Risk to Reward tool allows the user to accurately assess a trade's risk compared with its potential reward.

The user first positions the entry level with the first mouse click, then moves the mouse to the stop level and makes a second mouse click, then moves the mouse to the target level and makes the final mouse click.

As the mouse passes over the entry line when moving from the second to third points, pink and light green shadows will appear to indicate where the risk and reward areas are.

The Entry, Stop and Target levels are shown on the chart:

riskrewrd.gif

These values, including their dates and the number of decimal places displayed, can be manually adjusted in the properties dialog.

Risk

The tool then calculates the risk, that is the amount that will be lost if the stop is triggered for a trade entered at the entry level.

The Risk: display includes the possible monetary loss per share, as well as the percentage loss in value.

Reward

The tool also calculates the potential reward, that is the amount that will be gained for a trade entered at the entry level if the target price level is attained.

The Reward: display includes the possible profit amount per share, as well as the percentage increase in value.

Risk to Reward Ratio

The RRR: value is a percentage of the potential amount of reward divided by the level of possible loss. In the example above, the risk is half of the reward.

By using this tool, the relative risk of potential trades can be assessed based on the assumptions contained in the user's trading plan.

Properties Dialog

The Risk to Reward Properties dialog box has three tabs: Settings, Appearance, Font

Settings

The Entry, Stop and Target values, including their dates, can be manually adjusted in the Settings tabbed page of the properties dialog.

Once set to the exact position required, the positions can be Locked.

Appearance

Line Color, Style (line type), and Weight (thickness) can be individually set using the drop down menus provided.

Decimal Places

The number of Decimal Places displayed can be controlled. Zero (no decimal places) to four can be selected and saved as the new Default.

This feature is useful when trading ForEX or Futures.

The default setting is two decimal places.

Font

The Color, Style and Size of the font can also be specified, or the Chart Font can be adopted.

Note

if the Risk to Reward Drawing Tool is not to be used to place real trades, but used to "Paper Trade", the following steps will need to be used so the Risk to Reward Drawing Tool prompts Hubb software user to trade or not using broker configured in the Hubb software:

- right click on a blank section of a Price Chart

- select the "Chart Properties" option

- select the "Prompt to trade" option

- select the "Defaults" button

- select the option "Save the Current Settings as Default"

- click "OK"

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