Many traders spot a setup and open a position before considering where to place their Stop Loss and Take Profit levels. The Risk Reward drawing tool in DXcharts encourages the opposite approach: define your risk and reward before entering the trade.
Available in both Long Position and Short Position variants, the Risk Reward tool maps your planned entry against the Stop Loss and Take Profit targets on the chart. It calculates potential reward and risk, but its main use is helping you decide whether a trade is worth taking at all.
Start with the Risk Reward box
When analyzing a potential trade, place the Long or Short Position tool on the chart before entering the market. Position the center line at your intended entry level and define your maximum acceptable loss by setting the Stop Loss area.
Next, adjust the profit target area until the tool displays your desired reward-to-risk ratio. For example, if you are willing to risk 50 points and want a 2:1 ratio, your target must be 100 points away from the entry price.
At this stage, many traders focus only on the ratio itself. However, the advantage comes from examining where that target sits on the chart.
Let the chart challenge your idea
A favorable reward-to-risk ratio means little when the market is unlikely to reach the target.
Once the tool displays your desired ratio, look between your entry point and Take Profit level. Are there major resistance zones above a long entry, or support below a short one? Any swing highs, swing lows, trendlines, or consolidation areas that could stall the move?
The Risk Reward tool makes these obstacles immediately visible.
Imagine you are considering a long position and want at least a 2:1 reward-to-risk ratio. After adjusting the drawing, you notice that the Take Profit level sits beyond several strong resistance zones. For the trade to succeed, the market would need to break through all of them before reaching your target.
The visual layout reveals a potential problem: although the trade looks attractive on paper, the probability of achieving the target may be lower than expected.
Eliminate weak trades early
Professional traders often spend as much effort avoiding poor opportunities as they do finding good ones.
The Risk Reward tool can help eliminate setups that do not offer enough potential reward relative to the risk involved. Instead of entering a trade and hoping the market moves far enough, you can objectively evaluate whether the available price movement justifies the exposure.
If reaching your desired ratio requires an unrealistic target, the setup may not be worth trading. If nearby support or resistance significantly limits potential profit, it may be better to wait for a different entry point or skip the trade altogether.
By identifying these issues before placing an order, you can avoid trades that offer poor odds and focus on those with better odds of success.
Build discipline into every setup
One of the biggest benefits of using the Risk Reward tool is consistency. Every trade can be evaluated using the same process:
- Define the entry level.
- Set the Stop Loss based on your risk tolerance and market structure.
- Adjust the Take Profit target to achieve the desired reward-to-risk ratio.
- Examine the chart for support and resistance that could block the move.
- Decide whether the setup still makes sense.
This simple workflow transforms the tool from a position-sizing aid into a trade filter.
Instead of asking, “How much can I make on this trade?”, start by asking, “Does this trade deserve to be taken at all?” The Risk Reward tool helps answer that question before capital is put at risk.
