Implement AI-powered optimal risk management system
Features: - AI analyzes market conditions to suggest optimal SL/TP percentages - Considers volatility, technical levels, timeframe, and risk/reward ratios - Falls back to config defaults when AI optimization unavailable - Enforces minimum safety constraints (3% SL, 1% TP) - Enhanced status API with AI risk management info - Comprehensive logging of decision sources Benefits: - Dynamic adaptation to market conditions - Improved risk/reward optimization - Reduced need for manual tuning - Safety-first approach with fallbacks Technical Implementation: - Enhanced AnalysisResult interface with optimalRiskManagement - Modified AI analysis prompt for risk management calculation - Updated makeTradeDecision to use AI recommendations - Enhanced executeLiveTrade with AI-optimized parameters - Added lastAIRiskManagement tracking and status reporting - Comprehensive documentation and examples
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mindesbunister
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AI_RISK_MANAGEMENT.md
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AI_RISK_MANAGEMENT.md
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# AI-Powered Risk Management System
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## Overview
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The trading bot now features an AI-powered risk management system that automatically calculates optimal stop loss and take profit percentages based on market conditions, technical analysis, and current volatility.
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## How It Works
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### 1. AI Analysis Enhancement
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The AI now analyzes charts and provides optimal risk management recommendations in addition to trade signals:
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```json
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{
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"optimalRiskManagement": {
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"stopLossPercent": 4.5,
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"takeProfitPercent": 12.0,
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"riskRewardRatio": 2.7,
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"reasoning": "Based on current volatility, key levels, and timeframe analysis. Accounts for minimum 3% SL and 1% TP constraints.",
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"marketVolatility": "MEDIUM",
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"timeHorizon": "INTRADAY"
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}
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}
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```
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### 2. Minimum Safety Constraints
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The system enforces minimum values to prevent trades from being canceled immediately:
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- **Stop Loss**: Minimum 3% (system enforced)
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- **Take Profit**: Minimum 1% (system enforced)
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These minimums were determined through testing with Drift Protocol to ensure orders don't get canceled due to normal market volatility.
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### 3. AI Decision Factors
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The AI considers multiple factors when calculating optimal SL/TP:
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#### Market Volatility Assessment
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- **LOW**: Tighter stops (3-4%), smaller targets (3-6%)
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- **MEDIUM**: Moderate stops (4-6%), balanced targets (8-12%)
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- **HIGH**: Wider stops (6-10%), larger targets (15-25%)
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#### Technical Levels
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- **Support/Resistance**: Places stops beyond key levels
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- **Trend Strength**: Adjusts targets based on momentum
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- **Volume Profile**: Considers volume-based support/resistance
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#### Timeframe Analysis
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- **SCALP** (1m-5m): Tight stops, quick targets
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- **INTRADAY** (15m-4h): Balanced risk/reward
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- **SWING** (4h-1D): Wider stops, larger targets
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#### Risk/Reward Optimization
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- Targets minimum 1:2 risk/reward ratio
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- Adjusts based on market conditions
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- Considers probability of success
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### 4. Implementation Flow
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1. **Chart Analysis**: AI analyzes screenshot and market conditions
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2. **Risk Calculation**: Determines optimal SL/TP percentages
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3. **Safety Check**: Enforces minimum constraints (3% SL, 1% TP)
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4. **Trade Execution**: Uses AI values or falls back to config defaults
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5. **Logging**: Records decision source and reasoning
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### 5. Configuration Priority
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The system uses the following priority order:
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1. **AI Optimized** (if available): Uses AI-calculated percentages
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2. **Config Defaults**: Falls back to user-configured values
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3. **System Minimums**: Enforces safety constraints
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### 6. Monitoring
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#### Status API Enhancement
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The `/api/automation/status` endpoint now includes:
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```json
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{
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"lastAIRiskManagement": {
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"stopLossPercent": 4.5,
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"takeProfitPercent": 12.0,
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"riskRewardRatio": 2.7,
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"marketVolatility": "MEDIUM",
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"timeHorizon": "INTRADAY",
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"reasoning": "Current volatility suggests moderate stops with extended targets based on strong momentum",
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"source": "AI_OPTIMIZED",
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"timestamp": "2025-01-23T..."
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}
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}
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```
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#### Console Logging
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Each trade shows risk management source:
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```
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🤖 AI Risk Management: {
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useAIOptimal: true,
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stopLossPercent: 4.5,
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takeProfitPercent: 12.0,
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riskRewardRatio: 2.7,
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marketVolatility: 'MEDIUM',
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reasoning: 'Based on current volatility and technical levels'
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}
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🎯 Risk Management (AI_OPTIMIZED): {
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stopLoss: '4.5%',
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takeProfit: '12.0%',
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source: 'AI_OPTIMIZED'
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}
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```
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## Benefits
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### 1. Dynamic Adaptation
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- Adjusts to changing market conditions
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- Considers current volatility and trend strength
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- Optimizes for each specific setup
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### 2. Improved Risk/Reward
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- Targets optimal risk/reward ratios
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- Reduces over-conservative or over-aggressive positioning
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- Based on statistical analysis of market behavior
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### 3. Reduced Manual Tuning
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- Eliminates need to constantly adjust SL/TP settings
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- Automatically adapts to different timeframes
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- Considers multiple market factors simultaneously
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### 4. Safety First
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- Always enforces minimum safety constraints
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- Falls back to config defaults if AI analysis fails
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- Logs all decisions for transparency
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## Example Scenarios
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### Scenario 1: High Volatility Market
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```
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Market Conditions: SOL showing 8% daily range
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AI Recommendation:
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- Stop Loss: 6% (wider due to volatility)
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- Take Profit: 18% (larger target to match volatility)
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- Risk/Reward: 1:3
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- Reasoning: "High volatility requires wider stops but offers larger profit potential"
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```
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### Scenario 2: Low Volatility Consolidation
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```
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Market Conditions: SOL in tight range, low volume
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AI Recommendation:
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- Stop Loss: 3% (minimum enforced)
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- Take Profit: 6% (conservative target)
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- Risk/Reward: 1:2
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- Reasoning: "Low volatility suggests tight range-bound trading with conservative targets"
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```
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### Scenario 3: Strong Trend with Momentum
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```
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Market Conditions: Clear uptrend, strong volume
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AI Recommendation:
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- Stop Loss: 4% (below key support)
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- Take Profit: 15% (trend extension target)
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- Risk/Reward: 1:3.75
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- Reasoning: "Strong momentum supports extended targets with stop below structural support"
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```
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## Configuration
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To use AI-optimized risk management, simply ensure your automation is running. The system will:
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1. Use AI recommendations when available
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2. Fall back to your config settings if AI analysis doesn't provide optimal values
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3. Always enforce minimum safety constraints
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Your original config settings serve as fallbacks and minimums:
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```json
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{
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"stopLossPercent": 2, // Will be upgraded to 3% minimum
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"takeProfitPercent": 6 // Used if AI doesn't suggest better value
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}
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```
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## Future Enhancements
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- Machine learning from trade outcomes
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- Volatility-based dynamic adjustment
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- Correlation with market regimes
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- Multi-asset risk optimization
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- Real-time market sentiment integration
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@@ -45,6 +45,15 @@ export interface AnalysisResult {
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}
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riskToReward?: string
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confirmationTrigger?: string
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// AI-optimized risk management
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optimalRiskManagement?: {
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stopLossPercent: number // AI-recommended stop loss percentage
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takeProfitPercent: number // AI-recommended take profit percentage
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riskRewardRatio: number // Expected risk/reward ratio
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reasoning: string // Why these percentages are optimal
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marketVolatility: 'LOW' | 'MEDIUM' | 'HIGH' // Current volatility assessment
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timeHorizon: 'SCALP' | 'INTRADAY' | 'SWING' // Expected trade duration
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}
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indicatorAnalysis?: {
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rsi?: string
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vwap?: string
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@@ -217,6 +226,14 @@ Before analyzing, understand these core indicator principles:
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6. **CONFIRMATION TRIGGERS**: Specific signals to wait for before entry
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7. **OPTIMAL RISK MANAGEMENT**: Calculate ideal stop loss and take profit percentages:
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- **MINIMUM CONSTRAINTS**: Stop Loss ≥ 3%, Take Profit ≥ 1% (system enforced)
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- **VOLATILITY ASSESSMENT**: Analyze current market volatility (LOW/MEDIUM/HIGH)
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- **TIMEFRAME RISK**: Consider timeframe for position sizing and duration
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- **KEY LEVEL DISTANCE**: Use support/resistance levels to determine optimal SL/TP
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- **RISK/REWARD OPTIMIZATION**: Target minimum 1:2 risk/reward ratio
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- **MARKET CONDITIONS**: Factor in current trend strength and momentum
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**ANALYZE THE CHART AND PROVIDE:**
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- Current price action and trend direction
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- Key support and resistance levels visible on the chart
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@@ -276,6 +293,14 @@ Provide your analysis in this exact JSON format:
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},
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"riskToReward": "1:2.5",
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"confirmationTrigger": "Specific signal to wait for before entry",
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"optimalRiskManagement": {
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"stopLossPercent": 4.5,
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"takeProfitPercent": 12.0,
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"riskRewardRatio": 2.7,
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"reasoning": "Based on current volatility, key levels, and timeframe analysis. Accounts for minimum 3% SL and 1% TP constraints.",
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"marketVolatility": "MEDIUM",
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"timeHorizon": "INTRADAY"
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},
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"timeframeRisk": {
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"assessment": "Risk level based on timeframe",
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"positionSize": "Position sizing recommendation",
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