Indicator for Stop Loss levels calculation using Bill Williams technique Indicator For MT4
The Indicator for Stop Loss levels calculation using Bill Williams technique Indicator For MT4 calculates and displays areas to place Stop Losses. These levels are calculated using the methods described by Bill Williams in his book, Trading Chaos: Applying Expert Techniques to Maximize Your Profits.
Trading ideas with the Indicator for Stop Loss levels calculation using Bill Williams technique Indicator For MT4
Most traders develop their strategies by creating a feel for where they should place their stop losses. It is sound practice to manage your trade using stop loss because you can predetermine your risk amount relative to your account size before you open any trade. Though there are traders who trade without stop losses. This may seem extreme at first thought but it is not like that all. They basically look at the overall performance of an asset and check what is the most extreme trading range over time and then open a small lot size trade with the worst condition factored into the trading directive.
This indicator basically channels the price into a red and blue channel with the lines distanced about a certain number of pips away from the actual market activity. So above the price action you will see a red line and below the price action you will see a blue line. So what that means is that if you identify an opportunity to sell, what you can do is refer to the red line above your entry point and use that as the minimum threshold for setting your stop loss. Similarly if you have identified an opportunity to buy then you can refer to the blue line below the entry position in order for you to initiate a bullish stop loss.
So basically it acts as a guideline for you to know a decent place to set your stop loss in terms of safety. The benefit of having this resource is that you do not have to go about arbitrarily choosing where you want to put your stop loss. You can simply look at where you are entering the market and refer to the blue or red line - and then place your stop loss there. Even a fairly new trader with basic trading strategies and knowledge on sound money management can deploy this system into their trading.
Indicator for Stop Loss levels calculation using Bill Williams technique Indicator For MT4 - Breakouts and Take Profit
There are two more use cases that we can explore - one of them being is that we can use the the indicator through trend lines but I am going to reveal to you how we do that. Remember that, when you are in a downtrend, the most important trend line is the upper trend line - reason being, is that if the price action breaks the resistance then you should gear yourself up for a possible reversal to the upside. Similarly, if the market is trending upward, and you see the price break the support trend line to the downside - then we should prepare for possible moves to the downside because a bearish reversal is likely - especially in such circumstances. Following this theoretical approach - we will draw in resistance and support lines. By doing so, we are able to detect the moments when the market is about to make a reversal. So if the market breaks the upper trend line on the downtrend then we should prepare ourselves for a possible bullish reversal and also if the market breaks the lower trend line of an uptrend, then we should prepare ourselves for a sell. The picture below gives a visual representation of what I mean.
As you can see, I went to the extent of also drawing in the support trend line in the downtrend. I did this because I need to check the strength of the downtrend. Because, if the market breaks its own support line in a downtrend then it means that the strength of the downtrend is extremely strong. However, a few days later the market retraced back into our reconstructed channel and then broke the upper trend line and then it retested. This is a strong indication that the market could create a bullish reversal.
The other way in which this indicator could be used is that it can be utilized for establishing take profit targets. For instance, we could throw in a Bollinger bands indicator. Then trade successful breaks of the middle band. If the price action breaks and closes above the middle band, then we can open a buy position and set our first take profit target at the red line and have our stop loss at the blue line. The image below shows exactly what I mean.
Indicator for Stop Loss levels calculation using Bill Williams technique Indicator For MT4 - Conclusion
As shown and proven above, this indicator enjoys a great deal of flexibility in its usability. The main purpose of it was to make stop loss placement as simple as possible. Other use cases illustrated that it can also be used to trade trend line breaks, and it can also be utilized as a tool for setting up relevant take profit targets