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
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:
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.
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.
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.
& 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.
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.
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
PROís: Gives more flexibility
of managing available balance compared to Fixed Lots technique.
CONís: 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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