While the Automated Trading platform will do 99% of the work for you, it is still your responsibility to do the other 1%, which is to choose the right trading strategies and money management for your portfolio. Choosing the right strategy for your portfolio is a very important strategy in itself and can make the difference between losing big and winning big. We care about your long-term success and that's why we have dedicated an entire page to this subject.
How to Evaluate Strategies:
Since we do not understand the mechanics behind the strategies offered by other signal providers, it is difficult to recommend any specific strategies other than our own. However, the techniques below will help you evaluate them all for inclusion in your portfolio. Following are the most common methods used to evaluate a trading strategy:
1. Average Pips per Trade: This is, perhaps, one of the easiest and most effective ways of spotting decent trading strategies. If a strategy has a high average profit per trade, this not only means it has been a profitable strategy, but usually means that strategy has good potential to make back losses quickly. Please understand that many of the signal providers listed in the platform open multiple identical positions (trades) simultaneously to elevate their total pips profit. For example, if a single trade makes 100 pips profit but the signal provider opened 10 identical trades simultaneously, the platform will record 1,000 pips profit for those trades even though it was all from the same 100-pip move in the market. Therefore, it is important to use the "Avg Pips" field to filter out this artificially inflated data. The "Avg Pips" field automatically divides the total pips P/L by the number of trades. So in this example of 10 positions making 1000 pips, the Avg Pips would be 100. In addition, Average Pips also represents the average of all winning and losing trades combined.
2. Total Profit vs. Max Draw Down: The Max Drawdown is an important statistic but only when compared to the amount of total profit the strategy has made. Generally, you should look for trading systems where the Max Drawdown (labeld "Max DD" on the platform) is less than 50% of it's total profit. Such a statistic means the strategy has netted at least double the amount it has lost in a single losing streak. The smaller the Max Drawdown relative to pips profit, the better.
3. Consistency: You will find that there are some signal providers that are profitable on a consistent basis but have a low amount of total profit when compared to some of the more popular signal providers. While these may not look like the most profitable systems overall, they should not be overlooked since most can simply be traded at higher leverage* to compensate for a lower monthly pip average. As we mentioned in the section above, most strategies are designed to do well under "normal" market conditions.
Risk & Money Management
There are over 300 signal providers & strategies to choose from and you can trade any number of them at a time, considering you have sufficient margin, which creates a problem for traders who have less than $10,000 to begin with. So, to protect yourself from excessive losses and so you can stay in the game, we recommend that you set yourself a maximum dollar amount (or percentage) you want to risk each month and on each trade. Most trading systems are designed to do well under "normal" market conditions. However, on occasion, the market tends to act very abnormally for several weeks, or even months at a time, causing some systems to do very poorly during these phases. Therefore, when this happens, it is important to cut your losses at your monthly stop-loss and sit out of the market until the following month or until the market normalizes and the systems begin to do well again. This can save you from excessive and unnecessary losses during periods of abnormal market activity.
For accounts under $20,000, we recommend that you never risk more than 2% - 3% of your account value per trade and don't trade more than 1 signal provider for each $1,000 in account equity. To know the amount you are risking per trade in the Automated Trading platform, view the trade log of each signal provider you are consering and look at the largest loss taken on each trade and multiply it by the number of MAX positions you plan to trade. (When you apply a signal provider to your account for live trading, the software will ask you to set your maximum trades per system). For example, imagine a system that risks 100 pips per trade (including the bid/ask spread) but opens 2 trades at a time, each with a different profit target. This strategy actually risks up to 200 pips per trade (100 pips x 2 positions = 200 pips risk). Trading this system with a single 10k lot means you are risking $200 per trade or 2% per trade on a $10,000 account. A $5,000 account would be risking 4% per trade and a $2500 account would be risking 8% per trade, which greatly exceeds the 3% maximum risk recommendation. In such cases, you can set your Max Trades to 1, which will cut your risk in half. In addition to this, your MAXIMUM risk exposure on all trades combined (with open trades on every strategy) should never exceed 10% of your account equity. This will help ensure that you stay in the game so that even on the worst day possible, you are left with 90% of your account to continue trading with. Keep in mind that the more you lose, the harder it will be to make it back.
The more money you invest, the more you can relax our specific recommendations due to the increased cushion that comes with larger accounts and the increased diversification that comes with trading adding additional trading systems. Keep in mind that the more volume YOU trade, the more rebates WE (and the other signal providers) make so this recommendation is NOT necessarily in our best interest; it's in YOUR best interest! We want you to have the best experience possible so you'll tell others about our service and remain a client of ours for years to come. Over-trading and/or over-leveraging your account can allow a single short-term losing streak to either wipe you out or freak you out, causing you to close your account and run for the hills. You can control the likelihood of this happening by limiting your risk exposure on both a "per trade" basis and a "monthly" basis.
Money Management Strategies
In the Automated Trading platform, you have the option of using 2different Money Management strategies. These are Fixed Lot and Fixed %. Here's a brief explanation of each...
1. Fixed Lots:
This is the simplest of all available money management options. We recommend this option to anyone who is new to Forex or Money Management. With this Money Management option, you set the number of lots you would like to trade "per position" for each strategy. No matter how much your investment decreases or increases, you will still trade this fixed number of lots per position.
IMPORTANT: Keep in mind that if a strategy has a "Max Position" of 6, this means it can open up to 6 positions at a time with of your selected number of Fixed Lots. For example, if the Max Positions for your selected strategy is 6 and you set it to trade 20k lots, then it can open up to 6 positions x 20k, which equals $120k in combined trade volume at any given time. Many of the strategies on the AutoTrader platform will trade their maximum number of positions a majority of the time so pay special attention to each strategy's "Max Positions", which you can view in the performance section Portfolio Builder. This applies to all 3 types of Money Management Strategies on the platform.
2. Fixed % Risk:
The Fixed % Risk method is a more advanced Money Management option. This technique allocates a percentage of available account equity to be risked on each trade. For example, if you set the amount of risk to 2%, the platform will automatically calculate the number of lots needed in order to risk 2% of your account equity. This automated feature in the platform makes money management easy but is most effective on larger accounts of $10,000 or more, otherwise the platform will be very limited to the number of trades it can open and may not open any trades at all, depending on the risk parameters of your chosen signal providers. If you have less than $10,000 equity in your brokerage account, we recommend using the Fixed Lot feature and ajusting your lot size manually as needed.
Important Note: The stop loss of the trade needs to be predetermined for the software to calculate the lot size to apply to the trade.
PRO’s: Gives more flexibility of managing available balance compared to Fixed Lots technique.
CON’s: May not work properly on accounts with less than $10,000 equity. Aggressive traders will need even more equity for it to work properly.
Note: The demo accounts only offer 1 type of money management strategy, which is Fixed Lots. When trading on a live account with real money, you will have all 3 money management strategies to choose from.
Watch and Wait!
Once you have added your chosen systems to your portfolio, the trading platform will now automatically execute trades according to the systems you selected. Realize this does not mean the minute you apply a strategy you will be in a trade. You must wait for the next trade to occur, which could be several hours or several days depending on the system(s) you have selected and what positions those Systems are currently in. The next time any of the systems you have applied to your portfolio trigger a new buy or sell signal, this position will be automatically opened in your Brokerage Account.
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