The Profit Line Indicator For MT4



Table Of Contents:

  1. The Profit Line Indicator For MT4
  2. Money Management With Risk-to-reward
  3. Fixed Lot Size For Money Management
  4. Position Sizing: Variable Lot Size

The Profit Line Indicator For MT4 is a handy indicator in terms of money management. This indicator has the power to calculate the possible value of the profit or loss from a specific trade setup. Furthermore, it may also assist in helping you to do position sizing; as in calculate the specific lot size for the amount of capital you wish to risk or make. This is fantastic because it omits the need to use a separate position sizing and risk management tool for every trade you're about to take. Before high volatility news this will help you a lot in calculating the lot size swiftly without leaving your chart.

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The reason why majority of traders get into trading for - in the first place - is because their motive is to earn money consistently. Now trading is characterised by psychology, skill (strategy and analytical ability) and money management. One paramount characteristic amongst these three core facets is money management. Without sound money management skills your trading system will be prone to consistent losses.

Money Management With Risk-to-reward

The Profit Line Indicator For MT4 will help you to get better with your money management.

Money management is important because it edifies your skill set and it also eases your mind when you have a sound money management system even when the market is going against you. You need a trading system attributed with a solid money management system.  It takes a fine ability to manage risk so that your trading system and strategy does not decrease your trading capital.

Risk-to-reward ratio (RRR) forms an integral part of money management; this is the ratio of your potential loss (risk) to the respective profit (reward) for a given trade setup. So let's say you have a trading strategy and system that gives you consistently a RRR of 1:3. Your trading capital balance might be $10 000 and you feel as though you want to risk 3% of your trading capital for every trade you take; so that comes to $300 risk for every trade. But, based on your RRR every winning trade will give you $900 in return for every $300 you risk per trade.

To take this further, you spent hours upon hours going through thousands of these trade setups in your back testing and you discovered (based on historical data) that your system gives you four wins out of ten (may not seem very high). So if you were to take those ten trades, ceteris paribus, then your portfolio would have a new balance of $11 800 [($10 000 + ($900*four-$300*six)]. Even though your trading system has a low win-rate, it still yields a profit because of the high RRR and the low percentage risk you take per trade. However, if you were taking trades recklessly without taking into consideration risk management then you may easily blow your account and consequently hurt your trading psychology (confidence).

This above scenario and example is serves as a guideline for illustrative purposes. In your own back-testing because it is essential to evaluate and consider other important factors; such as longest losing streaks and/or maximum drawdown.

Fixed Lot Size For Money Management

You may prefer to use a rule of thumb for your money management in terms of using a set lot size. The quantitative methodology behind this practice is for every $10 000 your risk 1 lot size per trade, for every $1000 risk 0.1 lot size per trade and for every $100 you risk 0.01 standard lots per trade. So, if your balance was $5000 you would use a lot size of 0.50. What's great about the Profit Line Indicator For MT4 is that you can actually use this method to calculate the potential profit or loss in the currency of which your trading account is denominated in (see below).

The image above shows how I calculated my potential profit and loss for the sell signal setup.

This calculation is done quickly using the Profit Line Indicator For MT4 without having to leave my trading screen; it's all done onscreen. This example was for a technical trade setup and it never took long to do. This Profit Line Indicator For MT4 can also be used to quickly calculate the potential profit and loss relative to the fix lot size.

Using a fixed lot size per trade can be beneficial but it does not give you consistent control over the exact amount of money (percentage) you wish to risk from your trading account.

Position Sizing: Variable Lot Size

In the above example we used a fixed lot size money management methodology in terms of risk per trade - we achieved this by using the Profit Line Indicator For MT4. As indicated in the previous example, it is not ideal to use a fixed lot size for every trade because not every trade setup is the same. Therefore using a fixed lot size gives you minimal control over risking a fixed percentage of your trading portfolio for every trade. An example of using a fixed percentage risk for every trade is illustrated below.

I prefer to use a variable lot size money management methodology. This ensures that my percentage risk of my trading account is kept the same for every trade. It doesn't matter which trade setup I may identify, so long I specify my percentage risk, the Profit Line Indicator For MT4 will always calculate the correct lot size relative to my fixed risk percentage for every trade I take.

The motive is to stick to a money management system that works in preserving and growing your trading portfolio. The Profit Line Indicator For MT4 can be used to full benefit for those who need easier ways of managing their risk in their trading without having to leave their trading screens all the time to use other applications. There are various ways of calculating your risk using the Profit Line Indicator For MT4, but research and nominate a method that ensures you get the best result possible from your trading system. No trading system should be without a sound money management system because it will expose your account to net losses. Therefore, do not overlook the integral role money management plays in your trading career. Conclusively, there are plenty of great trading indicators out there that can make this job easy for you and the Profit Line Indicator For MT4 is no exception.

 

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