Calculating Take Profit to get the double of the trade - page 2

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After rereading all the replies along my original post (with a special thanks to @whroeder1) I changed a bit my understanding about this topic.

I will ask politely if @whroeder1 could help me here but the ask or invitation extends to everyone who would like to contribute.

I understood that the evaluation of StopLoss and LotSize using Risk Return model is a equation with two degrees of freedom.

In order to solve it I must fix one degree of freedom, making it a constant, and evaluate the remaining one.

Scenario #1

  • I declare a Risk, a Return no Lot Size and no Stop Loss in Pips
  • I consider my MONEY_AT_RISK (that is the amount of money that I am willing to loose calculated using the Supplied Risk parameter);
  • Use it to calculate the Lot Size and Stop Loss Delta (which will be summed or subtracted from Order Entry Price based on the kind of order);
  • When this is evaluated I calculate the difference from the Order Entry Price and multiply it by the Return to calculate the Take Profit Delta (which will be summed or subtracted from Order Entry Price based on the kind of order). 

I did not understand from your previous explanations how to do that.


Scenario #2

  • I declare a Risk, a Return, a Stop Loss in PIPS and no Lot Size;  
  • I must calculate the Stop Loss Delta and Lot Size;
  • I consider MONEY_AT_RISK with Stop Loss in PIPs to evaluate Lot Size and the Stop Loss in Money;

I did not understand from your previous explanations how to do that.


Scenario #3

  • I declare a Risk, a Return, a Lot Size and no Stop Loss in PIPS;
  • I must calculate the Stop Loss Delta;
  • I consider MONEY_AT_RISK with Lot Size to evaluate the Stop Loss in Money;

    I did not understand from your previous explanations how to do that.



 

It is simple if the quoted currency is same with your account currency.

So, returning to your AUDUSD example and assuming that your account is in US dollars,

If your lot size is 0.1, then you risk 1 $ per pip (Delta per lot: 10 $).

Then, if you want to risk your 120 $ by buying 0.1 lots at 0.76461, requires 120 pips stop loss.

You need to place your stop at 0.75261 and your TP should be at 0.78861 for 240 $ return.

0.76461 is the ask price here and ... 0.75261 and 0.78861 are bid prices.


Hope this helps.

 
Daniel Castro:

In order to solve it I must fix one degree of freedom, making it a constant, and evaluate the remaining one.

Scenario #1

  • I declare a Risk, a Return no Lot Size and no Stop Loss in Pips

Scenario #2

  • I declare a Risk, a Return, a Stop Loss in PIPS and no Lot Size; 

I did not understand from your previous explanations how to do that.


Scenario #3

  • I declare a Risk, a Return, a Lot Size and no Stop Loss in PIPS;

    I did not understand from your previous explanations how to do that.

  1. Correct. Fix two, calculate the third.

  2. Account Balance * percent/100 = RISK = OrderLots * (|OrderOpenPrice - OrderStopLoss|) * DeltaPerLot
    There are three things: risk, lots, SL. Scenario #1 does not fix two.

  3. Scenario #2, OOP-OSL is what you call "Stop Loss in PIPS." Multiply that by size of a PIP. Do the algebra and solve for lots. What's the problem?

  4. Scenario #3: What part of "You place the stop where it needs to be - where the reason for the trade is no longer valid. E.g. trading a support bounce the stop goes below the support." was unclear?
 
whroeder1:
  1. Correct. Fix two, calculate the third.

  2. There are three things: risk, lots, SL. Scenario #1 does not fix two.

  3. Scenario #2, OOP-OSL is what you call "Stop Loss in PIPS." Multiply that by size of a PIP. Do the algebra and solve for lots. What's the problem?

  4. Scenario #3: What part of "You place the stop where it needs to be - where the reason for the trade is no longer valid. E.g. trading a support bounce the stop goes below the support." was unclear?

That part I do not understand.  You are describing an equation (OK) but in a not so clear way.  So, correct me if I am wrong in my interpretation about it.

- Scenario #1

Account Balance * percent/100 = RISK = OrderLots * (|OrderOpenPrice - OrderStopLoss|) * DeltaPerLot()

Should be:

(1)

double MONEY_AT_RISK = AccountBalance() * Risk/100;

MONEY_AT_RISK = OrderLots() * (|OrderOpenPrice() - OrderStopLoss()|) * DeltaValuePerLot();

(2)
double LotSize = ((|OrderOpenPrice() - OrderStopLoss()|) * DeltaValuePerLot())/MONEY_AT_RISK;


(3)
double StopLoss = |OrderOpenPrice() - LotSize * (MONEY_AT_RISK) / DeltaValuePerLot()|


#Scenario 2

Seems to be solved by the math above.

#Scenario 3

Maybe your interpretation is due a code of lot size and stop loss coupled with a decision logic to enter a trade or not.  That is not my intention.  The idea here is to abstract the calculation in order to decouple the math of lot size and stop loss calculation from the logic of entering a trade. 

So your statement "You place the stop where it needs to be" does not play any role in this particular situation, but it is very important to keep in mind when the code is tightly coupled.

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