The quality of investors trading in financial markets always depend on the quality of management of their funds. Competent risk management largely determines the successful trade and, consequently, good earnings.
Many novice traders mistakenly believe that to be successful enough to trade only in time to obtain information on market changes. Often, however, one hundred percent successful deal at any moment can turn into unprofitable. This was confirmed many times in practice. The risk is always present in all trading transactions. Unfortunately, many newcomers are becoming interested in the Money-Management rules only after the loss of a significant part of your Deposit.
Types of Money Management in expert advisors
Automated trading in the Forex market also the high importance of risk management. Alas, even the robot brings the trader a lot of losing trades. How thoughtful would a software algorithm, losses not to avoid. The Advisor gives the opportunity to earn due to the greater number of profitable transactions. However, without proper setup he can easily “merge” the Deposit of the investor.
Money Management rules mean methods of capital management to trade various assets. His initial task was to meet an acceptable level of risk, but a second — the efficient use of capital. Safety manual and automated trading primarily depends on the ratio of the size of the working lot and the amount of funds on Deposit:
- Excessive lot is fraught with the topic being discussed.
- With low lot size increases the likelihood of a small profit.
The Golden mean is a moderate risk, allowing us to obtain a decent profit as a percentage of the Deposit.
The figure shows the results of the optimization of Money Management.
There are several options Money Management when trading using expert advisors:
- Robots with automatic setting lot.
- Advisors with a fixed amount of the transaction.
- Management of the funds when trading with setochniki (the size of the first order in a series of orders).
Auto lot (percentage of Deposit)
Trade experts auto configuration of the lot are considered to be fairly common. The investor sets the lot size as a percentage of the Deposit. In other words, the trader determined the possible loss which he will receive if it was a safety Stop Loss order. After that the trading robot will put the lot in the appropriate units.
The standard behavior of the auto experts as follows. Opening orders for purchase / sale of traded asset occurs on a signal of a certain indicator. Set Stop Loss and Take Profit are dynamic dimensions. Then trading robot, given the risks and size of the safety orders, calculates the lot. Of course every time it will be different, but in the case of failure, the size of the loss will not exceed the amount established by the investor.
For example, an investor determines the risk of 2%. In the case of a failed transaction, which closed at the Stop Loss, it will lose 2% of the total amount on your Deposit. Some traders recommend not to raise the risk above 5% and not to experiment on a quarter or a third of the total capital. This will clearly end “sink” funds and disappointment in automated trading.
It is undesirable to use in such trade and ruble accounts. Many “auto experts” don’t recognize the Russian currency, therefore, will conduct trading account dollar Deposit. Accordingly, the size of opened deals will be excessive. He under no circumstances would not fit around the capital. The deplorable result will be its total loss.
Use of some trade experts provides a fixed amount of the transaction. The EA will use in trading the lot size, an investor will indicate in the appropriate box, and for a robot the size of capital does not matter here.
Sometimes this causes some inconvenience, because depending on the amount of funds on the account every time a trader have to change the settings. Can not forget about it, because in case of reduction of the trading capital the robot will keep trading incorrect, it will result in losses. A careful control carried out manually.
The lot size should be calculated based on the size of the Deposit. Questions arise as to calculate the optimal lot size as this can be done by using the strategy tester.
Should review the whole process on a concrete example. Opening in the terminal strategy tester produced by choice of counsel. With an automatic Money Management should turn it off and put the lot 0.1.
Meet trade experts, in which the automatic Money Management is missing, and it is set manually. The robot then disabled Money Management is tested on a certain asset, and then analyzes the report.
All the emphasis is on the “max drawdown”. The report shows that it is 227 points for the test expert. Using these data, we can proceed to the calculation of the optimal size of the Deposit. However, you should determine what the amount of allowable drawdown. It is believed that the loss of the Deposit more than 25% are critical, so the loss up to a quarter Deposit for most investors is the best option.
If we assume that 227 points account for 25% losses, then it will be margin. Now, given the minimum trade size 0.01 lot, multiply the drawdown in 27 points for the amount expressed in dollars. As 0.01 lots is 10 cents (minimum price movement in trading), 227 multiplying by 0.1, you get 23 USD. This will be a 25% Deposit. He will be 92 USD.
So that drawdown does not exceed 25% of all funds on Deposit, you need to use the volume 0.01 lot for every 92 USD. Thus, the size of the transaction will be equal to 1000 / 92 × 0.01 = 0.11 lots.
The size of the first order in a series of orders
When trading use trading robots, the algorithm which involves the opening of orders at a certain distance from each other (the lot size can vary or be constant), then set the size of the first transaction.
Using this trading robot, the investor should follow the recommendations provided to him. In this case, always specify the amount of funds on Deposit and the corresponding lot. For example, if 0.01 is accounted for 1,000 of the Deposit, minimum trade 0.01 lot with $ 200 in the account will result in the loss of all funds. A trader should never use a Advisor if it is unable to replenish the Deposit to the recommended amount.
In the recommendations annexed to the expert, there are detailed instructions with a configuration. All data are average values, and is obtained empirically. Thanks to them, the robot would trade with the best risk. If there is insufficient funds to replenish recommended Deposit makes sense to open a cent account and to use it for automated trading.