PTMC team 19.02 2014

Simple Manual Trading System Part 3 - Setting SL and TP

This article is the third part in a series of lessons aimed at beginners who have an interest in creating their own strategy.

How to set SL and TP in a simple manual trading system

Where to set your limits and stops is an important question that most beginners do not understand. SL and TP are essential values of an every trading system and that is why we will devote some time to them.

There are many ways to determine SL and TP size. All of them divide into related and unrelated with the market. IfI would leave it like this, which type of SL would you pick? Probably most of you, if not everyone, would pick market related SL. However I find pretty often essays, system threads, journal threads, etc. where people use fixed SL no matter what. If they trade on Monday or Friday, Cable or Aussie, they use fixed SL. "It works for my system" - they say. What they do not tell, is that probably this system contains 10 or 20 trades in its history sometimes on a single instrument. How do they know the exact value of their fixed SL stays unclear. Maybe it's just guess. But if we take under consideration the actual state of the market, and, i.e., same market 10 months ago, we will probably find out, that now we have to deal with different volatility, and maybe different sentiment. How does fixed SL fit these both situations? Assuming that system is good enough to stay in use for 10 months. Same problem comes with fixed TP. If we wish to earn money on the market, we need to have bigger TP than SL. Perhaps the bigger the better. Unfortunately, it won't do any good. Theoretically the best is to have 1 pips SL and 100 pips TP or so. But here intuition tells us, that our SL cannot be too little, because we'll be wiped out from almost every trade. Similar with TP, that should not be too big, otherwise we limit our chance to score it. On the other hand to big SL will make us risking too much and too little TP will make trading not worth it. Let's go forward then.

After crashing rationale behind fixed TP and SL values, let's look closer to different ways of pointing SL and TP on a living market. Monday, Wednesday and Friday are barely similar and so is volume or volatility. Therefore many traders approach to the problem referring somehow price movement range.

The simplest method, in my opinion, is to set SL right below our signal candle, formation, pattern, etc. Because trading systems using such signals base on the assumption, that these signals points to some change in order flow that will push price into predefined direction. If you trade intraday, you may pick session open, pivot point or previous day high/low as these levels are very fragile to the sentiment shifts. If price breaks session open then probably most investors would like to build profits in the new direction. And when price beats previous day high there are more profits on everyone's sight. Therefore trading from open to high or from high to low have its grounds in traders collective behavior.

Other people use S/R levels, Pivot levels, packs of candles that tend to point supply/demand areas, or other stuff. All these methods have in common using some price characteristics that will tell you where your trade will become invalid.

The other way to pick SL level is by using indicators. Most common is Average True Range (ATR) which measure range from n periods averaging it down. This will provide you some good insight into not what but how rapidly price was doing. Assuming, that your system will tell you the direction, ATR should tell you what profit to expect, and what loss you need to withstand. And remember, you don't need to resist the price momentum. Actually strong move should hit your Stoploss preventing you from losing more on sentiment reversal. Your SL should mainly resist the corrective move and corrective move only. Therefore you don't have to pick the highest value. Very often used proportion is 50%-70% of highest value in certain time. That's right! If you trade intraday during the great overlap, don't use ATR from night hours because you can harm your account.

On the above M15 EUR/GBP chart we've picked ATR with period "1" (green) and "4" (red) taking most common tops as our Stoploss. Notice, that average from longer timeframe will be smoothed therefore it might need some further adjustment. I have put these values on chart but how would I know if they are really the proper ones? Candles fit pretty well. Then I placed Bollinger Bands and pivots too, to check how these correlate with my SL. This is the other valid idea to use bands like Bollinger or Envelopes. These indicators also base somehow on price volatility. You can pick the further ribbon of bands as your last post and most likely it will hold the price until sentiment changes. Please check first on demo account if it fits your system and what band values would be proper for your trading. Nevertheless, if you trade with momentum you may find them definitely worth trying.

It turned out, that I sold a pivot point with Stop Loss levels well above the upper band of Bollinger Bands channel. Trade seem to have good foundations.

And there, trade went on.

Here is the other example of our SL set. It is good, because we've missed the buy order totally but still look how well our ATR-BB-based Stop Loss is doing.

How to handle the Take Profit? It's often good to find a strong support/resistance on our way - ideally if it's far enough for us to get 2:1 or 3:1 Risk Reward. Such target could be next pivot level, yesterday's high/low or maybe recent week's high. If we trade with trend, or intraday prevailing direction, it's ok to assume, that first support/resistance will be broken and the second one could be our main target.

To finish this up, we can book our profit of $230 on pivot resistance.

And for our books to be clear we need to subtract $180 from EUR/USD loss. And we have still something left.

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The Agreement contains all the terms and conditions that shall regulate relations between the Company and the Referral Partner.

The Agreement shall enter into effect as soon as the Referral Partner registers on the PTMC official website and shall remain valid until the termination of the Agreement.

Please note that the Company reserves the right to revise, modify, change or remove clauses of the Agreement at any time at its sole discretion. Please check periodically terms and conditions of this Agreement on the Company website.

The Company reserves the right to reject the registration of any entity or person in the PTMC Referral program including the case if such entity is a person suspected of fraudulent activities фе its sole discretion.

1. General Terms

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1.2. The Referral Partner undertakes rights and obligations set forth hereinafter. The Referral Partner agrees to acquire users to the Company acting in his name.

1.3. The Referral Partner acknowledges that all the users acquired to the Company are the Clients of the Company.

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1.5. To become an Referral Partner a user must:

1.5.1. Register on the Company website PROTRADER.ORG.

1.5.2. After the registration on the PTMC official website the Referral Partner receives an individual unique referral link which is available in user profile.

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1.7.4. The Referral Partner has the right to use promotional materials provided by the Company representatives, they are: banners, text links, landing pages etc. The Referral Partner may use banners with the Company logo provided by PTMC and/or his personal referral link.

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2.13.1. Advertisement on websites that contradict the laws of the country where the Referral Partner is located.

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2.19. The Referral Partner agrees that the Company may unilaterally terminate and change terms and conditions of the Agreement without any explanations.

2.20. The Referral Partner is not entitled to: publish any negative comments (essays, letters) concerning the Company in any newspapers, magazines or other periodicals, blogs, Internet forums or other web-resources that may affect credibility or reputation of the Company. If the Referral Partner uses his own web-resource in order to attract clients to the Company, the content of the web-resource regarding the Company shall be approved by the Company.

2.21. If the Company detects that the Referral Partner has been involved in activities described in clause 2.20 of the Agreement, the Company is entitled to reject the Referral Partner request for funds withdrawal and to block his account, as well as inform the regulatory authorities of the jurisdiction of the Referral Partner.

2.22. It is prohibited to the Referral Partner to use PTMC brands in any way or manner whatsoever, including but not limited to the words “PTMC” spelled in any possible way (including with typos, spaces, signs, symbols or in any other way). Such forbidden use of the PTMC brands includes the use of such words/trademarks in the referral advertisements or in any part therewith, in the displayed URL and/or in the destination URL.

2.23. The Referral Partner shall only deal with third parties as a client of the Company. The Referral Partner shall not use the Company name, Company logo, etc. anywhere, including promotional materials, letterhead and business cards, advertisements and publications without the Company’s prior consent, with the exception of the case described in clause 1.8.4. of the Agreement.

2.24. The Referral Partner shall respect the confidentiality of the Company business and it is prohibited to him/her to disclose any confidential information or any information concerned the Company business for five years after termination or cancellation of the Agreement.

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3.5. Accounts detected to be registered by the Referral Partner himself in order to get money through dishonest means shall not be considered as those that the Referral Partner has acquired. In case if such violation of the terms and conditions is detected the Company is entitled to terminate the Agreement and to block the Referral Partner account.

3.6. The Referral Partner himself, his relatives or any other affiliated parties shall not be considered as the Clients acquired by the Referral Partner. In case if any data of the Referral Partner coincides with the data provided by any acquired Client (such as ID data, address, telephone number, email address, IP address, etc.), such Client shall not be considered as the acquired one and shall be removed from the Referral Partner list. In such a case the referral revenue credited for this Client will not be paid.

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4.5. If any activity conducted by the Referral Partner is contrary to international law, morality, public order, good faith etc., the Company has a right to terminate the Agreement and to block the Referral Partner account.

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4.12. The Company agrees to pay referral revenue to the Referral Partner in accordance with Appendix 1 of the present Agreement.

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4.16. Under the above mentioned circumstances the Party that fails to fulfill its obligations is obliged to inform the other Party through written notification within five business days from the moment of their onset and cessation.

Appendix 1. Referral revenue calculation

The Company shall pay the Referral Partner percentage in the amount from 10% up to 30% from the software license payments carried out by the Clients acquired by the Referral Partner.

The equivalent of the above mentioned referral revenue is calculated immediately as soon as the acquired client pays for the software and displayed in the user profile of the Client on the official PTMC website.

The Company shall pay the Referral Partner a certain percentage from 10% to 30% from the software license payments. This percentage is determined by the total number of the Clients acquired to the Company by the Referral Partner. The percentage is calculated according to the table attached below.

Crediting of the referral revenue shall be made on a monthly basis and shall be calculated within the first 10 days of each calendar month.

Any other payments are possible only in case if the Company and the Referral Partner agreed it in an amendment agreement.

Total number of the attracted users*	Referral revenue percentage
1 – 9 users	10,00%
10 – 99 users	20,00%
100 + users	30,00%