Power of Risk Management

Hi All,

Thought I'd start a thread to follow this, but I'm testing a theory to help prove to people how powerful risk management is over getting the perfect entry / exit.

As disclosure I'm not selling anything or wanting people to invest in me. This is a demo account with IG Markets, originally funded with $10,000 USD at about 2pm GMT on the 10th March 2016.

The EA is running a very simple strategy on the 15 minute charts only trading the DAX (at the moment 24 hours a day, but I might put a time filter on it to only trade the EU / US sessions).

Rules are basically that it trades buy / sells alternatively. So when a trade's stop loss or take profit is hit the EA then takes the trade on the other side.

Settings are a 500 pip take profit (I could probably bring this down, and may well do to see if that it increase profits), a 100 pip initial stop and a step 25 pip trailing stop (If you are used to IG then this would translate to a 50 pip / 10 pip and 2.5 pip step on the web interface although I don't think you can have less than a 6 pip step there on a spread betting account).

Anyway if this turns out to be profitable then it'll hopefully show that managing your risk and locking in profits is one of the most important aspects.

I did backtest this with tick data from Duckstory over a 12 month period. On 15 minute charts it ended up making about £100k net (£300k gains and £200k losses) but it lost money on all other timeframes.

Enjoy!

T/E is here: http://www.forexfactory.com/nox120 (if anyone can tell me how to embed it into the thread that would be great!)

So the first experiment failed - Running overnight with the wider spread and the forced large stop (I assumed the orders would be rejected) wiped the account out.

New demo account, $10k again, and running with a trading hours filter to only trade between 8.30am and 5.30pm GMT.

I'll see if I can add a bit more on position sizing to adjust the lot sizes to the available equity later today.

is it IG on MT4? There spread is fairly wide even in normal market hours on MT4 - i think 3pts.

There IG Web platform has spread of 1pt during normal market hours. Dont know if you noticed mate but if trading short term in/out then may make a difference to you.

Cheers

On the other hand the strategy seems like Russian Roulette (on demo)

That's because there isn't a strategy really, using this to sharpen up my MT4 coding skills and also take a pure focus on risk management before looking at any strategies for entry / exit.

Not denying you need a good strategy for finding trades Just wanted to see what happened if you took random buy/sells but really focused in on the stop levels. At the moment not going so well but working on a few more revisions!

Yes - I'm aware of the larger spread on MT4 but you can't code the web interface.

Current spread on MT4 is 2 pips for CFDs with MT4. Don't have my SB account open so don't know what spread is like on MT4.

Added another revision to include a lot sizing calculation.

This sizes the lot to a risk of 5% account equity based on the stop position and available balance then checks to make sure it isn't smaller than the minimum lot size and is correct to the broker lotstep requirement.

Left it on the current demo account with equity about $2,400.00

Forgot to stop the EA there when making a change.. Very quickly closed a load of trades at the spread loss!

nice management keep it up

Hardly ;-) But thanks! I'm working on a version five this weekend.