Stop Loss & Take Profit Tabs

Here the logical combination of the stop loss and take profit tabs is discussed.

The stop loss and take profit tabs are slightly different from the first four. They are further divided into 2 sub-tabs and logical operators are a subset of those available. Some examples of application are also produced.

For the sake of simplicity, we refer only to the 'Stop loss' tab, but exactly the same observations apply to the 'Take profit' tab.

Two Sub-Tabs

As already described in previous chapters of the manual, the stop loss tab is slightly different from the first four.

Two Sections

The tab is further divided into two sections, the top one, called 'Stop Loss' and the bottom one, called 'Trading Algorithm'. Each section contains two slots. Only the first two slots are dedicated to stop loss algorithms themselves. The two at the bottom are for 'standard' trading algorithms, i.e. the ones found in the following branches of the tree:

  Technical indicators based
  Patterns
  Candlesticks

This has been designed so that stop loss algorithms can be affected by some other conditions, confirming the signal given by the stop loss algorithm.

Two Sub-Tabs

The section at the bottom, is further divided into 2 sub-tabs:

  Long
  Short

Rationale

The stop loss algorithm has different characteristics according to the position under way. If no position is open, the stop loss level simply doesn't exist. If a long position is open, the stop loss level is set below the price, and maybe trailing. If a short position is open, the stop loss level is set above the price, and maybe trailing. Usually the formula for the stop loss level is something like:

  Stop loss = price ± something

where the plus sign is for short trades, the minus sign for long trades and something depends on the algorithm. Trading Conceiver lets you combine logically the stop loss algorithms with 'standard' ones. So it is evident that typically the 'standard' algorithms be different according to the open position. That's why you can select different algorithms for long and short positions. When there is an open long position, only the 'Long' sub-tab is considered for the combination of the tab. When there is an open short position, only the 'Short' sub-tab is considered for the combination of the tab. So, the stop loss algorithms are combined with the 'Long' tab when a long position is under way, and with the 'Short' tab when a short position is open.

Kind of Trend

When a long position is open, in order to liquidate it when a stop loss is triggered, you probably want to pinpoint standard elementary trading algorithms foreshadowing a downtrend in order to confirm the stop loss, because you want to close a long position when the market is in a downtrend phase. So you might want to select algorithms giving downtrend signals in the 'Long' sub-tab for the stop loss. The other way around when a short position is open: you probably will select standard elementary trading algorithms giving uptrend signals.

Take Profit

The same reasoning holds true for the take profit. You typically want to liquidate a long position in order to take the profit achieved up to that moment when an overturn of the market is imminent, i.e. when it is expected to tend downward from that instant onward. So probably you will prefer to choose algorithms giving downtrend signals in the 'Long' sub-tab for the take profit. The other way around when a short position is open: you probably will select standard elementary trading algorithms giving uptrend signals.

Don't Distinguish Long/Short

Sometimes, it is not necessary to distinguish between an open long or short position. This happens when you want to use signals not tied to long and short positions. For instance if you are using signals for congestion or volatility. If you want to confirm the stop loss trigger only when in high congestion or high volatility, there is no need to distinguish between long and short. In such a case, if you don't want to distinguish between the directions of the open position, unselect the checkbox:

  Distinguish long / short

In this case, only one sub-tab is enabled, both for long and short positions.

Logical Operators

Within Stop Loss and Standard Algorithms

There are only two slots for the stop loss algorithms. So the operators 'At least 2' and 'At least 3' are meaningless, and are not present between them, i.e. in the first combobox from top.

The same holds true for the two standard algorithms in the two bottom slots, i.e. the last combobox from top.

Between Stop Loss and Standard Algorithms

The rationale here is to have some standard algorithms confirming the stop loss orders, not overriding them. It means that the stop loss and the standard algorithms must be true simultaneously. That's why only the 'AND' operator appears in the combobox between them, i.e. the second combobox from top. So you can decide to apply the stop loss only if some other conditions are satisfied, but the stop loss must be triggered. Such other conditions alone cannot give the stop loss signal; that's why there is no the 'OR' operator between the two sections.

Liquidate in General

In all other cases, standard algorithms saying to liquidate, must be put in one of the two liquidate tabs (Liquidate long and Liquidate short). So if you were tempted to OR them with the stop loss algorithms, put them in the liquidate tabs instead. Moreover by stop loss we always mean a level breakout. All other kinds of liquidate orders must be dealt with in the Liquidate tabs.

Parentheses

Due to the limitations described here, the possible combinations for parentheses are fewer than usual. That's why they are managed semi-automatically, for user friendliness.

Intraday Trading

Stop loss algorithms operate intradaily, by definition, while the vast majority of the elementary trading algorithms doesn't. As already explained in other chapters of the manual, for the latter you might want to consider selecting the checkbox

  Extend

in order not to wait until the close, wasting the power of stop loss algorithms.

Examples of Application

Distinguish Long and Short

As said, for long positions you might want to consider an algorithm signaling a downtrend. You have a long position open; the stop loss signal is triggered when the price goes too low. Before liquidating the position, you want to make sure the price is really going down, so you select a down-trending signaling algorithm. You want to liquidate only if the trend is downward. In our example we chose a simple derivative of the Simple Moving Average:

  Momentum of MA of SMA negative

The same holds true for short positions. To make things symmetrical, we chose the symmetrical algorithm for the Short tab:

  Momentum of MA of SMA positive

In the example you can see that, during the long position, both stop loss levels are triggered in multiple points, where the price goes below both of them. And yet, the tab combined doesn't give any signal, because it is always 0, i.e. false. This is because the derivative of the SMA is not negative when the stop loss are triggered, as clearly visible in the overlay and in Stop loss long 3. This technique permitted extra profits, because prevented us from liquidating a long position when the trend was clearly up. Note that the elementary trading algorithm put in the 'Long' sub-tab is true at a certain time of the uptrend, but not simultaneously with the stop loss trigger, so, again, the tab combined doesn't give any signal. It is only when both the stop loss algorithms are triggered and simultaneously the derivative of the SMA is negative that the stop loss combined gives the liquidate signal and, indeed, the long position is liquidated. Also note that for both the trading algorithms we selected the checkbox

  Extend

Don't Distinguish Long and Short

In this example we use a congestion algorithm:

  ADX less than threshold

so we don't want to distinguish between the directions of the open position. That's why we deselect the checkbox 'Distinguish long / short'. We also select the checkbox 'Extend'.