User Guide : Risk/Reward & SL Method User Guide

Risk/Reward & SL Method User Guide Table of Contents

1. What is Risk/Reward?
2. Two Stop Loss Methods
3. Input Configuration Guide
4. Donchian SL Method in Detail
5. ATR SL Method in Detail
6. How to Calculate Take Profit (TP1–TP4)
7. Real-World Examples
8. Frequently Asked Questions (FAQ)
9. Tips for Effective Use

1. What is Risk/Reward?

Risk/Reward (R:R) is the ratio between the amount of money you accept losing (Risk) and the amount of money you expect to gain (Reward) in a single trade.

Simple Example

You place a BUY order on gold (XAUUSD):

• Entry (entry price): 2000.00
• Stop Loss (SL): 1990.00 — you accept losing 10 USD/oz
• Take Profit (TP): 2020.00 — you expect to gain 20 USD/oz

The R:R ratio = 1:2 — meaning for every dollar lost, you expect to make 2 dollars.

Why is R:R Important?

Even if you only win 40% of your trades, a good R:R system can still be profitable. Example:

Trade	Result	Profit/Loss
1	Win (R:R 1:2)	+2R
2	Loss	-1R
3	Loss	-1R
4	Win (R:R 1:2)	+2R
5	Loss	-1R
Total	2 wins, 3 losses	+1R (profit)

You win 40% but still make profit because each win earns twice the loss amount.

The Role of Stop Loss

Stop Loss (SL) is the price level at which the system automatically exits a trade to protect your account. Placing SL correctly is the foundation of any strategy. SL too close — easily swept by market noise. SL too far — excessive risk on losses.

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2. Two Stop Loss Methods

The system provides two ways to calculate SL. Each method has advantages depending on your trading style.

Method 1: Donchian SL (Default — Recommended)

Donchian SL places the Stop Loss at the actual high or low of the market in the last N candles.

• BUY orders: SL = Lowest low within N candles
• SELL orders: SL = Highest high within N candles

Advantages:

• SL has real technical meaning (not arbitrary numbers)
• Adapts to actual market swing ranges
• Suits trading based on market structure

Method 2: ATR SL

ATR SL calculates Stop Loss based on average market volatility (Average True Range).

• BUY orders: SL = Entry - (ATR × Multiplier)
• SELL orders: SL = Entry + (ATR × Multiplier)

Advantages:

• SL automatically expands/contracts with market volatility
• High volatility markets — SL wider, avoids early sweeps
• Low volatility markets — SL tighter, optimizes risk

When to Use Which Method?

Situation	Recommendation
Trading structure, swing trading	Donchian SL
Scalping or high volatility markets	ATR SL
Not sure — just starting	Donchian SL (default)
Want consistent, predictable SL	ATR SL

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3. Input Configuration Guide

All Risk/Reward settings are located in the "=== RISK/REWARD ===" group in the indicator's Properties window.

How to access: Double-click the indicator on chart → "Inputs" tab → Scroll to RISK/REWARD group

Complete Parameter Table

Display Name in MT5	Default	Range	Explanation
SL Method (Donchian channel or ATR)	Donchian	Donchian / ATR	Choose SL calculation method
├─ Donchian Period (5-100, 20=standard)	20	5 – 100	Number of candles to find high/low
├─ Timeframe (CURRENT=chart TF)	CURRENT	Any TF	Timeframe for Donchian calculation
├─ ATR Multiplier (xATR, 2.0=standard)	2.0	> 0	Multiplier for ATR
TP1 Risk:Reward (0=disabled)	1.0	0 – 10	R:R ratio for TP1
TP2 Risk:Reward (0=disabled)	2.0	0 – 10	R:R ratio for TP2
TP3 Risk:Reward (0=disabled)	3.0	0 – 10	R:R ratio for TP3
TP4 Risk:Reward (0=disabled)	4.0	0 – 10	R:R ratio for TP4

Important Note: Parameters marked with  ├─  (branch) only apply when the corresponding SL method is selected. Example: "Donchian Period" only affects the result when "SL Method" = Donchian.

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4. Donchian SL Method in Detail

What is Donchian Channel?

Donchian Channel is a technical tool that draws the highest high and lowest low across N candles. The system uses the channel's low as SL for BUY orders, and the channel's high as SL for SELL orders.

How the System Calculates SL

BUY orders:

Scan N candles starting from the candle AFTER the signal, going backwards

SL = Lowest Low within those N candles

SELL orders:

Scan N candles starting from the candle AFTER the signal, going backwards

SL = Highest High within those N candles

Diagram (BUY)

Donchian Period Parameter

The "├─ Donchian Period (5-100, 20=standard)" parameter controls how many candles to scan:

• Small period (5–10): SL closer, suits scalping. High risk of early sweep.
• Medium period (15–25): Good balance. Recommended for most trades.
• Large period (30–100): SL farther, suits swing trading. Requires larger account.

Timeframe Parameter

The "├─ Timeframe (CURRENT=chart TF)" parameter allows calculating Donchian on a different timeframe than the current chart.

Real-world example: You're viewing M15 chart, but want SL placed at H1 low:

• Set Timeframe = H1
• System finds the Lowest Low of 20 H1 candles → SL will be wider and more stable

ATR Fallback Mechanism

If Donchian returns an invalid value (missing historical data, connection error), the system automatically switches to ATR using 1.5×ATR as fallback SL. No action needed — this process is completely automatic.

Automatic SL Protection Mechanism

The system has automatic protection to ensure SL is always valid:

• If Donchian returns a value inside the signal candle (meaningless), the system automatically pushes SL outside safe zone
• If historical data is missing, the system uses fallback based on signal candle structure
• No intervention needed — process is completely automatic

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5. ATR SL Method in Detail

What is ATR?

ATR (Average True Range) is an indicator that measures market volatility level. High ATR = market is highly volatile. Low ATR = market is ranging, low volatility.

SL Calculation Formula

BUY orders:

Risk = ATR(14) × ATR Multiplier

SL   = Entry - Risk

SELL orders:

Risk = ATR(14) × ATR Multiplier SL = Entry + Risk

ATR Multiplier Parameter

The "├─ ATR Multiplier (xATR, 2.0=standard)" parameter is the multiplier for ATR:

Multiplier	Meaning	Suitable For
1.0–1.5	SL very close	High-speed scalping, high risk
2.0	Standard SL (default)	Most trading situations
2.5–3.0	SL wider	Swing trading, volatile markets
> 3.0	SL very wide	Not recommended for small accounts

Calculation Example

Suppose XAUUSD is trading at 2000.00, ATR(14) = 8.5 USD:

Technical Note: The system uses an internal ATR calculator ( CInternalATR ) — independent of external ATR indicators. This ensures fast calculation and eliminates handle error risks.

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6. How to Calculate Take Profit (TP1–TP4)

The Concept of R (Risk Unit)

The entire TP system is built on R — the risk unit:

R (Risk) = |Entry - SL| (absolute distance from Entry to SL)

Formula for Each TP Level

BUY orders:

SELL orders:

Default Settings Table

Input	Default Value	Meaning
TP1 Risk:Reward (0=disabled)	1.0	Take profit at R:R 1:1
TP2 Risk:Reward (0=disabled)	2.0	Take profit at R:R 1:2
TP3 Risk:Reward (0=disabled)	3.0	Take profit at R:R 1:3
TP4 Risk:Reward (0=disabled)	4.0	Take profit at R:R 1:4

Disabling Some TP Levels

If you want only 2 TP levels, set TP3 and TP4 = 0:

Changing R:R After Signal Appears

You can change the R:R ratio even after the signal is already drawn on chart. Open Properties → adjust TP1/TP2/TP3/TP4 → click OK → system automatically recalculates and updates all TP lines.

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7. Real-World Examples

Example 1: BUY Order with Donchian SL

Scenario: BUY signal appears on XAUUSD H1

Parameters:

Calculation Result:

Chart Result:

• SL line (red): 1995.00
• TP1 line: 2025.00 — take 1/4 position here
• TP2 line: 2040.00 — take 1/4 position here
• TP3 line: 2055.00 — take 1/4 position here
• TP4 line: 2070.00 — take remaining position here

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Example 2: SELL Order with ATR SL

Scenario: SELL signal appears on XAUUSD M15

Parameters:

Calculation Result:

8. Frequently Asked Questions (FAQ)

Q1: Is the default Donchian Period 20 suitable for all timeframes?

Not necessarily. Period 20 works well for H1 and H4. For M1/M5, try Period 10–15. For D1/W1, Period 20–30 usually works better. Recommendation: start with 20, adjust based on backtest results.

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Q2: Can I use different Donchian Periods and Timeframes for each indicator?

Yes. Each indicator (Mirage, PinBar, Inverted Hammer) has its own settings. Example: PinBar uses Donchian H1 Period 20, while Mirage uses Donchian H4 Period 15 — completely independent.

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Q3: Why does SL sometimes look "too far" from Entry?

Donchian SL reflects the actual low/high of the market within N candles. If the market just had a large swing, SL might be farther than usual. This is intentional design to avoid being "swept" by normal volatility. If SL is too far for your risk appetite, reduce Donchian Period or use ATR SL.

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Q4: Does TP4 = 0 mean I have no maximum profit limit?

No. Setting TP4 = 0 means the TP4 line is not drawn on chart. You still need to manually close profit or use Trailing Stop to protect gains. Note: if all TP = 0, the system draws no take profit levels — the trade stays open indefinitely.

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Q5: Can I change SL Method after the indicator is running?

Yes. Open Properties → change "SL Method" → click OK. System automatically detects the change and applies the new SL method to all current signals immediately (including old signals currently displayed).

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Q6: What does R:R 1:1 mean? Why set TP so close?

R:R 1:1 means profit target equals the risk amount exactly. This is an early take profit — typically used to close part of position (e.g., 25% lot) and move SL to breakeven, while the remaining portion continues toward TP2/TP3/TP4.

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Q7: Does the system automatically place orders (SL/TP) on MT5?

No. This is an indicator (visual tool), not an EA (trading robot). The SL/TP lines are only visual displays to support your decision-making. You manually place orders at the displayed levels. For full automation, integrate with an EA.

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Q8: Why sometimes does SL show a different value than expected?

Several common reasons:

• ATR fallback mechanism has activated (missing Donchian historical data)
• Inverted Hammer's special protection has overridden SL
• Donchian timeframe differs from current chart → SL calculated on different TF
• Signal candle not yet closed (system waits for candle close)

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9. Tips for Effective Use

Tip 1: Start with Default Settings

Don't change too many things at once. Run with defaults (Donchian Period 20, ATR Multiplier 2.0, TP1-TP4 = 1:1/1:2/1:3/1:4) for at least 2–4 weeks to understand system behavior before optimizing.

Tip 2: Combine Donchian Timeframe with Your Trading Plan

If you trade structure on H4, set "├─ Timeframe" = H4 even if chart is M15. SL will be placed at H4 support/resistance zones — much stronger technical meaning than SL from M15 data alone.

Tip 3: Manage Position by TP Levels

Instead of closing entire trade at one level, scale out at each TP:

Level	Close Amount	SL Action
TP1	25% lot	Move SL to Entry (breakeven)
TP2	25% lot	Keep SL at Entry
TP3	25% lot	Move SL to TP1
TP4	Remaining 25%	Let it run

This strategy ensures: trade cannot lose after TP1 hit, while still capturing extended profits.

Tip 4: Use ATR SL During London/New York Sessions

During major trading sessions (London 14:00–17:00 VN, New York 20:00–23:00 VN), volatility often spikes unexpectedly. ATR SL automatically adjusts to this volatility — helps avoid being swept by short-term price spikes during peak hours.

Tip 5: Re-check Settings When Switching Currency Pairs

Each pair has different volatility characteristics. XAUUSD (Gold) is more volatile than EURUSD. When switching from gold to forex:

• Donchian Period: can increase to 25–30 for less volatile forex pairs
• ATR Multiplier: can decrease to 1.5 for stable forex pairs

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Quick Summary

This documentation applies to version 1.15. Last updated: 2026-02-17. Author: Ich Khiem Nguyen — https://www.mql5.com/en/users/khiemni/seller All rights reserved.