Hi all! First time posting here. In TradingView, using the long position tool, for example. I place a 1:1 RR trade. Profit is base on entry price, and take profit price. Why then does it matter if I take the same exact trade, same entry, same exit price, but just move the stop loss much lower, 0.39 RR, for example, the profit is much different? The strategy I’m looking at requires a farther stop loss. I understand this is somehow related to lot size calculation, but not sure why. How can I use the farther stop loss without affecting profit? Is there a specific calculator for this?
Thanks!
Please see attached image with two trades.
The greater the distance between the entry and the stop-loss, the greater the amount of capital at risk if the stop-loss is hit, unless you reduce the size of the position.
Most traders use strategies that give a r:r of at least 1;1. This translates as a plan in which the capital risked equals the profits gained - so you put $100 at risk of loss in order to have the possibility of making $100 profit. If you push the stop-loss price further away, you might then be risking $200 to make $100. Is that sensible?
Also, if your $100 risk is actually 20% of your total capital, that would be far too much. risk not more than 2% per trade.
But don’t risk a penny until you know you have a proven and profitable strategy. Use a demo account.
3 Likes
Thanks for the reply. Yes, on a demo account, for certain. Testing all kinds of strategies, and this one seems plausible. I understand that if the stop loss is hit, it’s a larger loss. Seems the idea with this strategy is to give the trade more space to move, and use risk management to keep losses small. But how to do this, place a distant stop loss, and not have it affect the take profit amount? If that makes any sense.
If you double the distance from entry to your stop-loss, you would need to halve the size of your position in order to keep your capital risk the same.
Think of it in terms of $ per pip. suppose your account is $1000 and you only wish to risk 2% of this per trade, i.e. $20. Your strategy tells you that the stop-loss must be 30 pips from entry, so you would therefore only wish to risk $0.66 per pip. If you need to double the distance to your stop-loss, you would only want to risk $0.33 per pip in order to keep within the 2% limit.
2 Likes
Theoretically just changing the stop loss should also only change the potential loss and not the potential profit. There are, however, a couple of situations where it may not seem like it.
- Expressing the profit in terms of how much you are risking. In this case because the amount you are risking is changing then the expression of profit will also change.
- Movement in price. If you are trying this on live data then the existing price (or even the spread) will change and so you will see a change in profit that is related to the underlying change in price or spread rather than the change you made.
1 Like
i can add a (rather obscure) third possibility to the two mentioned just above by @igillman : on some trading platforms, where a trailing stop has been entered, it’s possible that adjusting the stop-loss may “pull” the set target with it, because of the fixed-pip linkage between the two (it “shouldn’t” really happen, but i’ve once seen a platform on which it did!) - i mention it only for “completeness”: i doubt very much whether this is actually responsible for whatever you’ve observed
I think it’s because of the difference of pips in amount. Generally I set stop loss at not more than 30 pips away from the entry point.
Thanks everybody for your input. I think I’ve got the solution/work around for this. I simply enter the lot size into the calculator as a 1:1 trade. Then in MT5 enter the trade lot size and take profit, but with the much lower stop-loss.
Yes, exactly. Higher risk, with higher win rate. At least with the number of trades I’ve tested. So far, so good.
I don’t always use a 1:0.39 RR. Sometimes higher, or lower. On days I trade, real-time demo of course, I’ll do 10-20 trades with this strategy. Don’t know the exact number of trades I’ve tested this on. It’s at least 150, so quite small I guess. Last day I traded was Monday with the results here, which have been typical.
I couldn’t tell you how/why this works, though. I live in China, and my wife (Chinese) works in finance where she has access to some kind system that can apparently predict with a degree of accuracy and under some circumstances, small bounces up or down. They won’t let me look at it, being a foreigner here. So my wife just calls me and says “Buy/Sell xxx now” Pretty crazy. I guess it would be insider trading back home, but not here.
You may have a point there. But who knows, it’s probably just a Chinese version of Trade-Ideas. 
Let me take a stab at it. Let’s suppose you’re going for a 1:2 risk/reward ratio. Your risk is $30 and your reward is $60.
But you realize that after you enter, your stop loss looks too close, or is placed in a bad position. No problem! Simply move your stop loss farther away to give you more room. But now you realize you are only getting a 1;1 RR because your risk matches your profit target of $60, not to mention it’s double what you normally risk on one trade.
Here’s what you do for next time. For short positions set your stop loss above the previous lower high. For long positions, set your stop loss below the previous higher low. Measure the number of pips between your entry price and your stop loss. Set your profit at two times that number (1:2 risk/reward ratio).
When trading ranges, set a limit order to buy at major support and take profit in the middle of the range. For short positions, set a limit order to sell at major resistance, and take profit in the middle of the range. Both have stop losses the number of pips equal to the distance between the entry price and the middle of the range. In both cases, you are going for a 1:1 scalp profit.
Demo accounts absolutely have their uses, but do bear in mind that trading live is very different from trading demo. When the SL is protecting real money, few of us are as bold and calm as we are when it is demo money on the line. The psychology side is very important here. Personally, I did not trade too long in demo - I preferred to start small with real skin in the game. It helped get my head ready for the big bump of losing real money for the first time. Good luck with it all.
1 Like
Good plan 
It’s all about the ratio of profit and loss. By changing the size of the stop loss we change the size of the expected loss.
I think no one will argue that there can be losses in trading. Therefore, the size of the stop loss affects the total amount of losses and therefore also the amount of profit.
It can also be said that there are situations when price may move in the opposite direction from what was expected. And if the stop loss is close to the opening price of the order there is a probability that during the correction, the stop order will trigger. And further the price will go in the initial direction. This must also be taken into account.
In general, you need to correctly calculate the size of the stop loss in order to ensure profits.