Trading 105: Risk Management Techniques for MT5 / Setting a Proper Stop-Loss on MT5

Step 1: Setting a Proper Stop-Loss on MT5

A stop-loss (SL) automatically closes your trade when price moves against you by a certain amount. This protects your account from large losses.

Where to Place Your Stop-Loss

1. Below/Above Key Levels

• If you buy at support, place the SL slightly below support.
• If you sell at resistance, place the SL slightly above resistance.

2. Using Candlestick Confirmation

• For rejection wicks, place SL beyond the wick.
• For engulfing candles, place SL below/above the pattern.

3. Fixed Pip-Based Stop-Loss

• For scalping: 5-10 pips SL.
• For intraday: 15-30 pips SL.
• For swing trading: 50+ pips SL.

🔹 How to Set a Stop-Loss on MT5:

• Open New Order (F9).
• Set the Stop-Loss field before executing the trade.
• To adjust an existing trade, drag SL on the chart or right-click the trade in the Trade tab.

Step 2: Determining Position Size (Lot Size Calculation)

Position sizing ensures that each trade risks a consistent percentage of your account, preventing large losses.

Position Size Formula

Lot Size=Risk Per Trade ($)Pip Value×Stop-Loss (pips)\text{Lot Size} = \frac{\text{Risk Per Trade (\$)}}{\text{Pip Value} \times \text{Stop-Loss (pips)}}

Where:

• Risk Per Trade = 1-2% of account balance.
• Pip Value = Fixed for each asset (e.g., $10 per pip for 1 lot on EUR/USD).
• Stop-Loss = Distance from entry to SL in pips.

🔹 Example Calculation:

• Account Balance: $10,000
• Risk Per Trade: 1% ($100)
• Stop-Loss: 20 pips
• Pip Value (EUR/USD, 1 lot): $10 per pip

Lot Size=10010×20=0.5 lots\text{Lot Size} = \frac{100}{10 \times 20} = 0.5 \text{ lots}

📌 Tip: Use an MT5 Position Size Calculator to speed up this process.

Step 3: Using Risk-to-Reward Ratios (RRR)

A good trading system should aim for a risk-to-reward ratio of at least 1:2.

What is Risk-to-Reward?

Risk-to-Reward=Target ProfitStop-Loss\text{Risk-to-Reward} = \frac{\text{Target Profit}}{\text{Stop-Loss}}

• 1:1 → If you risk 10 pips, your target should be 10 pips.
• 1:2 → If you risk 10 pips, your target should be 20 pips.
• 1:3 → If you risk 10 pips, your target should be 30 pips.

How to Apply on MT5:

• When entering a trade, set a take-profit (TP) level that is at least 2x your stop-loss distance.
• You can use the Modify Order option in the Trade tab to set or adjust your TP/SL.

🔹 Example on EUR/USD:

• Entry: 1.1000
• Stop-Loss: 1.0980 (-20 pips)
• Take-Profit (1:2 RRR): 1.1040 (+40 pips)

📌 Key Insight: Even with a 50% win rate, a 1:2 RRR makes you profitable over time.

Step 4: Avoiding Common Risk Management Mistakes

🚫 Trading Without a Stop-Loss – Exposes your account to massive risk.
🚫 Risking Too Much Per Trade – Keep risk at 1-2% per trade to prevent large drawdowns.
🚫 Moving Stop-Loss Too Soon – Let price breathe; don’t panic if a trade temporarily goes against you.
🚫 Overleveraging – Stick to calculated lot sizes, not oversized positions.

How to Maintain Discipline:

✅ Always set SL & TP before entering a trade.
✅ Use a trading journal to track risk per trade.
✅ Stick to your planned RRR, even if tempted to close early.

Step 5: Journaling Your Risk-Managed Trades

Modify your trading journal to track risk-per-trade and RRR:

📌 End-of-Session Review:

• Did I stick to my risk per trade?
• Was my RRR correct?
• Did I move my SL too soon or let my losses run?

Step 6: Visualizing Risk Management on MT5 Charts

Now, I’ll generate an MT5-style chart showing:

1. Proper stop-loss placement below/above key levels.
2. Risk-to-reward ratio with SL/TP marked.
3. Position sizing example for a trade.

Let me generate this now. 🎨📊

Here is an MT5-style chart illustrating risk management strategies, including:

1. Proper stop-loss (SL) and take-profit (TP) placement based on key levels.
2. A 1:2 risk-to-reward ratio example showing SL below support and TP at twice the distance.
3. Position sizing calculations annotated for better understanding.

Use this as a reference when applying risk management in your trades!