Minimum Profit Drawdown
Last updated
Last updated
The Minimum Profit Drawdown (MPD) feature is a powerful risk management tool designed to help traders protect profits earned during a trading session. It acts like a static, profit-based stop-loss for the entire account.
Instead of focusing solely on losses, MPD allows traders to set a target profit level. Once that level is achieved, MPD starts actively monitoring the account's overall Profit and Loss (P&L) for the current trading session.
If the P&L drops below a predefined threshold (after reaching the target), MPD automatically takes action to limit potential losses and preserve a portion of the accumulated gains. This helps prevent situations where a profitable day turns into a losing one due to market reversals.
The Minimum Profit Drawdown feature operates in a clear, three-stage process, making it easy to understand and use:
Inactive Stage (Waiting): At the start of a trading session, MPD is dormant. It doesn't do anything until a specific condition is met. Think of it as being "off" until triggered.
Monitoring Stage (Watching): This stage begins when the account's total P&L for the current trading session reaches or exceeds the "Minimum Profit Trigger" value set by the trader. Once triggered, MPD constantly watches the session P&L. It's now "on" and actively looking for a potential drawdown.
Action Stage (Protecting): This stage is triggered only after the Monitoring Stage has begun. If the session P&L falls below the "Minimum Profit Threshold" (also set by the trader), MPD takes immediate action. The specific action is chosen by the user from a set of options and is designed to prevent further losses. The MPD resets after triggering, and will begin again at the Inactive Stage.
Session P&L: This is the total profit or loss for the account for the current trading day. It resets to zero at the beginning of each new trading session.
Trigger: The event that moves MPD from one stage to the next. The first trigger is the session P&L reaching the Minimum Profit Trigger. The second trigger is the session P&L falling below the Minimum Profit Threshold after the first trigger.
The MPD feature offers four key settings, giving traders precise control over its behavior:
Enabled (On/Off Switch):
true (On): Turns the MPD feature on. The system will begin the three-stage process.
false (Off): Turns the MPD feature off. No monitoring or action will occur. This is the default setting.
Minimum Profit Trigger (Activation Point):
Purpose: This sets the profit level that must be achieved before MPD starts actively monitoring.
Units: The account's base currency (e.g., USD).
How to Use: Choose a profit amount that, once reached, you'd like to start protecting. For example, if you want to start protecting profits after making $500, set this to 500.00.
Important Note: Setting this to 0 means MPD will start monitoring immediately at the start of the trading session, as the P&L will always be greater than or equal to 0.
Minimum Profit Threshold (Protection Level):
Purpose: This sets the level to which the session P&L can fall after the Minimum Profit Trigger has been hit, before the system takes action.
Units: The account's base currency.
How to Use: Choose a P&L level that represents the minimum profit you want to keep for the session. For example, if you've triggered monitoring at $500 profit and want to ensure you keep at least $200, set this to 200.00. The Minimum Profit Threshold must always be greater than zero, hence minimum profit.
Important Note: Although not enforced, it's generally recommended to set this lower than the Minimum Profit Trigger. Setting it higher would mean the Action Stage could be triggered before the Monitoring Stage, which defeats the purpose.
Triggered Action (Action on Drawdown):
Purpose: This setting defines exactly what happens when the session P&L falls below the Minimum Profit Threshold (during the Action Stage).
Position Options:
Flatten: This is the most aggressive option. It immediately cancels all open orders and closes all open positions at the current market price. This effectively "locks in" the remaining P&L, as close to the threshold as possible (market conditions permitting).
Do nothing: This option means MPD will trigger, but no automatic action will be taken. This is useful for testing or if you prefer to handle the situation manually.
Alert Options:
Block Signals: Block all further alerts, preventing them from executing.
Closing Only: Changes all current and future alerts to closing only.
Do nothing: Similar to above, no action is taken to affect future alerts to this account.
Let's explore several examples to illustrate how MPD works in different situations:
Minimum Profit Trigger: $500
Minimum Profit Threshold: $250
Triggered Action: Flatten
The trader starts the day. MPD is initially inactive.
The trader has a good morning, and the session P&L reaches $600. This crosses the Minimum Profit Trigger, and MPD moves to the Monitoring Stage.
The market reverses slightly. The session P&L drops to $400. MPD is still in the Monitoring Stage, as the P&L is above the threshold.
The market continues to decline. The session P&L drops to $240. This is below the Minimum Profit Threshold.
MPD triggers the "Flatten" action. All orders are canceled, and all positions are closed at the market. The trader's profit for the session is locked in, close to $250.
Full Profit Threshold: $1,200
(MPD) Minimum Profit Trigger: $1,000
(MPD) Minimum Profit Threshold: $100
Triggered Action: Flatten
This example assume we've set a full Profit Threshold on the account for $1,200, meaning our account will be flattened if the session P&L meets or exceed that threshold. Note how the full Profit Threshold is slightly above the Minimum Profit Trigger.
The trader starts the day. MPD is initially inactive.
The trader has a great start, reaching a session P&L of $1,100. MPD enters the Monitoring Stage and we are just shy of a Full Profit.
The market experiences a significant downturn. The session P&L falls to $200, but has still not been stopped out. MPD remains in the Monitoring Stage.
The P&L continues to rise again $1,250. This is above the Full Profit Threshold.
The "Flatten" Action is triggered, capturing full profit. This is best case scenario, but we are still comforted by the fact that we would have kept a small profit if the market continued to turn against us.
These examples demonstrate the flexibility and control offered by the Minimum Profit Drawdown feature. By carefully choosing the settings, traders can tailor the protection to their specific trading style and risk tolerance.
