Danger/Reward & SL Methodology Person Information Desk of Contents
- What’s Danger/Reward?
- Two Cease Loss Strategies
- Enter Configuration Information
- Donchian SL Methodology in Element
- ATR SL Methodology in Element
- Tips on how to Calculate Take Revenue (TP1–TP4)
- Actual-World Examples
- Continuously Requested Questions (FAQ)
- Suggestions for Efficient Use
1. What’s Danger/Reward?
Danger/Reward (R:R) is the ratio between the sum of money you settle for shedding (Danger) and the sum of money you count on to achieve (Reward) in a single commerce.
Easy Instance
You place a BUY order on gold (XAUUSD):
- Entry (entry value): 2000.00
- Cease Loss (SL): 1990.00 — you settle for shedding 10 USD/oz
- Take Revenue (TP): 2020.00 — you count on to achieve 20 USD/oz
The R:R ratio = 1:2 — which means for each greenback misplaced, you count on to make 2 {dollars}.
Why is R:R Vital?
Even for those who solely win 40% of your trades, a great R:R system can nonetheless be worthwhile. Instance:
| Commerce | Consequence | Revenue/Loss |
|---|---|---|
| 1 | Win (R:R 1:2) | +2R |
| 2 | Loss | -1R |
| 3 | Loss | -1R |
| 4 | Win (R:R 1:2) | +2R |
| 5 | Loss | -1R |
| Whole | 2 wins, 3 losses | +1R (revenue) |
You win 40% however nonetheless make revenue as a result of every win earns twice the loss quantity.
The Function of Cease Loss
Cease Loss (SL) is the value degree at which the system robotically exits a commerce to guard your account. Putting SL appropriately is the muse of any technique. SL too shut — simply swept by market noise. SL too far — extreme threat on losses.
2. Two Cease Loss Strategies
The system offers two methods to calculate SL. Every methodology has benefits relying in your buying and selling model.
Methodology 1: Donchian SL (Default — Really helpful)
Donchian SL locations the Cease Loss on the precise excessive or low of the market within the final N candles.
- BUY orders: SL = Lowest low inside N candles
- SELL orders: SL = Highest excessive inside N candles
Benefits:
- SL has actual technical which means (not arbitrary numbers)
- Adapts to precise market swing ranges
- Fits buying and selling based mostly on market construction
Methodology 2: ATR SL
ATR SL calculates Cease Loss based mostly on common market volatility (Common True Vary).
- BUY orders: SL = Entry – (ATR × Multiplier)
- SELL orders: SL = Entry + (ATR × Multiplier)
Benefits:
- SL robotically expands/contracts with market volatility
- Excessive volatility markets — SL wider, avoids early sweeps
- Low volatility markets — SL tighter, optimizes threat
When to Use Which Methodology?
| Scenario | Suggestion |
|---|---|
| Buying and selling construction, swing buying and selling | Donchian SL |
| Scalping or excessive volatility markets | ATR SL |
| Undecided — simply beginning | Donchian SL (default) |
| Need constant, predictable SL | ATR SL |
3. Enter Configuration Information
All Danger/Reward settings are situated within the “=== RISK/REWARD ===” group within the indicator’s Properties window.
Tips on how to entry: Double-click the indicator on chart → “Inputs” tab → Scroll to RISK/REWARD group
Full Parameter Desk
| Show Title in MT5 | Default | Vary | Rationalization |
|---|---|---|---|
| SL Methodology (Donchian channel or ATR) | Donchian | Donchian / ATR | Select SL calculation methodology |
| ├─ Donchian Interval (5-100, 20=normal) | 20 | 5 – 100 | Variety of candles to seek out excessive/low |
| ├─ Timeframe (CURRENT=chart TF) | CURRENT | Any TF | Timeframe for Donchian calculation |
| ├─ ATR Multiplier (xATR, 2.0=normal) | 2.0 | > 0 | Multiplier for ATR |
| TP1 Danger:Reward (0=disabled) | 1.0 | 0 – 10 | R:R ratio for TP1 |
| TP2 Danger:Reward (0=disabled) | 2.0 | 0 – 10 | R:R ratio for TP2 |
| TP3 Danger:Reward (0=disabled) | 3.0 | 0 – 10 | R:R ratio for TP3 |
| TP4 Danger:Reward (0=disabled) | 4.0 | 0 – 10 | R:R ratio for TP4 |
Vital Observe: Parameters marked with ├─ (department) solely apply when the corresponding SL methodology is chosen. Instance: “Donchian Interval” solely impacts the consequence when “SL Methodology” = Donchian.
4. Donchian SL Methodology in Element
What’s Donchian Channel?
Donchian Channel is a technical instrument that attracts the highest excessive and lowest low throughout N candles. The system makes use of the channel’s low as SL for BUY orders, and the channel’s excessive as SL for SELL orders.
How the System Calculates SL
BUY orders:
Scan N candles ranging from the candle AFTER the sign, going backwards SL = Lowest Low inside these N candles
SELL orders:
Scan N candles ranging from the candle AFTER the sign, going backwards SL = Highest Excessive inside these N candles
Diagram (BUY)
Donchian Interval Parameter
The “├─ Donchian Interval (5-100, 20=normal)” parameter controls what number of candles to scan:
- Small interval (5–10): SL nearer, fits scalping. Excessive threat of early sweep.
- Medium interval (15–25): Good stability. Really helpful for many trades.
- Massive interval (30–100): SL farther, fits swing buying and selling. Requires bigger account.
Timeframe Parameter
The “├─ Timeframe (CURRENT=chart TF)” parameter permits calculating Donchian on a distinct timeframe than the present chart.
Actual-world instance: You are viewing M15 chart, however need SL positioned at H1 low:
- Set Timeframe = H1
- System finds the Lowest Low of 20 H1 candles → SL will probably be wider and extra steady
ATR Fallback Mechanism
If Donchian returns an invalid worth (lacking historic knowledge, connection error), the system robotically switches to ATR utilizing 1.5×ATR as fallback SL. No motion wanted — this course of is totally computerized.
Computerized SL Safety Mechanism
The system has computerized safety to make sure SL is at all times legitimate:
- If Donchian returns a worth inside the sign candle (meaningless), the system robotically pushes SL exterior secure zone
- If historic knowledge is lacking, the system makes use of fallback based mostly on sign candle construction
- No intervention wanted — course of is totally computerized
5. ATR SL Methodology in Element
What’s ATR?
ATR (Common True Vary) is an indicator that measures market volatility degree. Excessive ATR = market is extremely risky. Low ATR = market is ranging, low volatility.
SL Calculation System
BUY orders:
Danger = ATR(14) × ATR Multiplier SL = Entry – Danger
SELL orders:
Danger = ATR(14) × ATR Multiplier SL = Entry + Danger
ATR Multiplier Parameter
The “├─ ATR Multiplier (xATR, 2.0=normal)” parameter is the multiplier for ATR:
| Multiplier | Which means | Appropriate For |
|---|---|---|
| 1.0–1.5 | SL very shut | Excessive-speed scalping, excessive threat |
| 2.0 | Customary SL (default) | Most buying and selling conditions |
| 2.5–3.0 | SL wider | Swing buying and selling, risky markets |
| > 3.0 | SL very vast | Not really helpful for small accounts |
Calculation Instance
Suppose XAUUSD is buying and selling at 2000.00, ATR(14) = 8.5 USD:
ATR Multiplier = 2.0 Danger = 8.5 × 2.0 = 17.0 USD/oz BUY: SL = 2000.00 – 17.0 = 1983.00 SELL: SL = 2000.00 + 17.0 = 2017.00
Technical Observe: The system makes use of an inside ATR calculator ( CInternalATR ) — unbiased of exterior ATR indicators. This ensures quick calculation and eliminates deal with error dangers.
6. Tips on how to Calculate Take Revenue (TP1–TP4)
The Idea of R (Danger Unit)
All the TP system is constructed on R — the danger unit:
R (Danger) = |Entry – SL| (absolute distance from Entry to SL)
System for Every TP Degree
BUY orders:
TP1 = Entry + R × TP1_RR TP2 = Entry + R × TP2_RR TP3 = Entry + R × TP3_RR TP4 = Entry + R × TP4_RR
SELL orders:
TP1 = Entry – R × TP1_RR TP2 = Entry – R × TP2_RR TP3 = Entry – R × TP3_RR TP4 = Entry – R × TP4_RR
Default Settings Desk
| Enter | Default Worth | Which means |
|---|---|---|
| TP1 Danger:Reward (0=disabled) | 1.0 | Take revenue at R:R 1:1 |
| TP2 Danger:Reward (0=disabled) | 2.0 | Take revenue at R:R 1:2 |
| TP3 Danger:Reward (0=disabled) | 3.0 | Take revenue at R:R 1:3 |
| TP4 Danger:Reward (0=disabled) | 4.0 | Take revenue at R:R 1:4 |
Disabling Some TP Ranges
If you’d like solely 2 TP ranges, set TP3 and TP4 = 0:
TP1 = 1.0 (enabled) TP2 = 2.0 (enabled) TP3 = 0 (disabled — no TP3 line drawn) TP4 = 0 (disabled — no TP4 line drawn)
Altering R:R After Sign Seems
You’ll be able to change the R:R ratio even after the sign is already drawn on chart. Open Properties → alter TP1/TP2/TP3/TP4 → click on OK → system robotically recalculates and updates all TP strains.
7. Actual-World Examples
Instance 1: BUY Order with Donchian SL
Situation: BUY sign seems on XAUUSD H1
Parameters:
SL Methodology: Donchian Donchian Interval: 20 Timeframe: CURRENT (H1)
Calculation Consequence:
Entry: 2010.00 Donchian Low (20 H1 candles): 1995.00 SL = 1995.00 Danger (R) = Entry – SL = 2010.00 – 1995.00 = 15.00 USD TP1 (R:R 1.0) = 2010.00 + 15.00 × 1.0 = 2025.00 TP2 (R:R 2.0) = 2010.00 + 15.00 × 2.0 = 2040.00 TP3 (R:R 3.0) = 2010.00 + 15.00 × 3.0 = 2055.00 TP4 (R:R 4.0) = 2010.00 + 15.00 × 4.0 = 2070.00
Chart Consequence:
- SL line (pink): 1995.00
- TP1 line: 2025.00 — take 1/4 place right here
- TP2 line: 2040.00 — take 1/4 place right here
- TP3 line: 2055.00 — take 1/4 place right here
- TP4 line: 2070.00 — take remaining place right here
Instance 2: SELL Order with ATR SL
Situation: SELL sign seems on XAUUSD M15
Parameters:
SL Methodology: ATR ATR Multiplier: 2.0 Present ATR(14): 6.5 USD
Calculation Consequence:
Entry: 2050.00 Danger = ATR × Multiplier = 6.5 × 2.0 = 13.00 USD SL = Entry + Danger = 2050.00 + 13.00 = 2063.00 TP1 (R:R 1.0) = 2050.00 – 13.00 × 1.0 = 2037.00 TP2 (R:R 2.0) = 2050.00 – 13.00 × 2.0 = 2024.00 TP3 (R:R 3.0) = 2050.00 – 13.00 × 3.0 = 2011.00 TP4 (R:R 4.0) = 2050.00 – 13.00 × 4.0 = 1998.00
8. Continuously Requested Questions (FAQ)
Q1: Is the default Donchian Interval 20 appropriate for all timeframes?
Not essentially. Interval 20 works effectively for H1 and H4. For M1/M5, strive Interval 10–15. For D1/W1, Interval 20–30 often works higher. Suggestion: begin with 20, alter based mostly on backtest outcomes.
Q2: Can I exploit totally different Donchian Durations and Timeframes for every indicator?
Sure. Every indicator (Mirage, PinBar, Inverted Hammer) has its personal settings. Instance: PinBar makes use of Donchian H1 Interval 20, whereas Mirage makes use of Donchian H4 Interval 15 — fully unbiased.
Q3: Why does SL typically look “too far” from Entry?
Donchian SL displays the precise low/excessive of the market inside N candles. If the market simply had a big swing, SL may be farther than normal. That is intentional design to keep away from being “swept” by regular volatility. If SL is simply too far in your threat urge for food, scale back Donchian Interval or use ATR SL.
This fall: Does TP4 = 0 imply I’ve no most revenue restrict?
No. Setting TP4 = 0 means the TP4 line shouldn’t be drawn on chart. You continue to have to manually shut revenue or use Trailing Cease to guard positive aspects. Observe: if all TP = 0, the system attracts no take revenue ranges — the commerce stays open indefinitely.
Q5: Can I alter SL Methodology after the indicator is operating?
Sure. Open Properties → change “SL Methodology” → click on OK. System robotically detects the change and applies the brand new SL methodology to all present alerts instantly (together with previous alerts presently displayed).
Q6: What does R:R 1:1 imply? Why set TP so shut?
R:R 1:1 means revenue goal equals the danger quantity precisely. That is an early take revenue — usually used to shut a part of place (e.g., 25% lot) and transfer SL to breakeven, whereas the remaining portion continues towards TP2/TP3/TP4.
Q7: Does the system robotically place orders (SL/TP) on MT5?
No. That is an indicator (visible instrument), not an EA (buying and selling robotic). The SL/TP strains are solely visible shows to assist your decision-making. You manually place orders on the displayed ranges. For full automation, combine with an EA.
Q8: Why typically does SL present a distinct worth than anticipated?
A number of frequent causes:
- ATR fallback mechanism has activated (lacking Donchian historic knowledge)
- Inverted Hammer’s particular safety has overridden SL
- Donchian timeframe differs from present chart → SL calculated on totally different TF
- Sign candle not but closed (system waits for candle shut)
9. Suggestions for Efficient Use
Tip 1: Begin with Default Settings
Do not change too many issues directly. Run with defaults (Donchian Interval 20, ATR Multiplier 2.0, TP1-TP4 = 1:1/1:2/1:3/1:4) for no less than 2–4 weeks to know system habits earlier than optimizing.
Tip 2: Mix Donchian Timeframe with Your Buying and selling Plan
If you happen to commerce construction on H4, set “├─ Timeframe” = H4 even when chart is M15. SL will probably be positioned at H4 assist/resistance zones — a lot stronger technical which means than SL from M15 knowledge alone.
Chart: M15 (for exact entry factors) Donchian Timeframe: H4 (SL at H4 construction) → Greatest mixture: entry precision + structural SL
Tip 3: Handle Place by TP Ranges
As an alternative of closing whole commerce at one degree, scale out at every TP:
| Degree | Shut Quantity | SL Motion |
|---|---|---|
| TP1 | 25% lot | Transfer SL to Entry (breakeven) |
| TP2 | 25% lot | Preserve SL at Entry |
| TP3 | 25% lot | Transfer SL to TP1 |
| TP4 | Remaining 25% | Let it run |
This technique ensures: commerce can’t lose after TP1 hit, whereas nonetheless capturing prolonged earnings.
Tip 4: Use ATR SL Throughout London/New York Classes
Throughout main buying and selling periods (London 14:00–17:00 VN, New York 20:00–23:00 VN), volatility typically spikes unexpectedly. ATR SL robotically adjusts to this volatility — helps keep away from being swept by short-term value spikes throughout peak hours.
Tip 5: Re-check Settings When Switching Forex Pairs
Every pair has totally different volatility traits. XAUUSD (Gold) is extra risky than EURUSD. When switching from gold to foreign exchange:
- Donchian Interval: can improve to 25–30 for much less risky foreign exchange pairs
- ATR Multiplier: can lower to 1.5 for steady foreign exchange pairs
Fast Abstract
=== RISK/REWARD — QUICK REFERENCE === SL Methodology = Donchian → SL at precise excessive/low (construction) SL Methodology = ATR → SL based mostly on volatility (versatile) R = |Entry - SL| TP1 = Entry ± R × 1.0 (early shut, breakeven) TP2 = Entry ± R × 2.0 (main goal) TP3 = Entry ± R × 3.0 (prolonged goal) TP4 = Entry ± R × 4.0 (far goal) Set any TP = 0 to disable that degree.
This documentation applies to model 1.15. Final up to date: 2026-02-17. Writer: Ich Khiem Nguyen — https://www.mql5.com/en/customers/khiemni/vendor All rights reserved.