Conservative Money Management Styles for EAs
- What Does Conservative Money Management Method Mean?
- Types of Conservative Money Management Techniques
- In Conclusion. What Should I Do?
Money management determines the new trade volume: Is it necessary to increase the volume? Is it crucial to reduce it? Or is it required to remain unchanged? Lord, how many issues do we need to solve?!
When creating a robot, consider conservative money management techniques. They are the safest methods since trade volumes are boosting slowly and gradually. All the strategies of this type focus on preserving capital and raising it.
The essential conservative money management methods are:
- Standard lot technique
- Multiple lot strategy
- Fixed-ratio style
- Fixed percentage approach
- Hybrid methods
Let us read about them more!
An EA may contain several money management methods. In this case, you can analyze the trading system using different approaches and choose the best one.
Standard lot technique
All orders are performed by the same lot. It can be the mini lot or a custom lot that must be smaller than the deposit. This technique is suitable for trading "noobs" because it allows them to gain experience with minimal risks and losses.
Also, traders can apply this method for trading system testing. You will determine if the system is profitable dealing with a standard lot. If it is effective, you can scale it using more complicated money management practices.
Multiple lot strategy
In this case, you can open several positions simultaneously. This method is more complex but profitable. It can be divided into two options:
1. One trading signal opens several trades (for example, two).
An Example of the First Option Applying
The first trade closes after the first new trend has ended. Its purpose is to obtain a guaranteed small profit.
2. After the first trade closes, the second one can be moved to benefit and hold as long as possible. The second trade aims at getting the highest profit. In this case, the accumulated position value increases as the trend develops.
An Example of the Second Option Applying
If the trend ends, the accumulated position may partially or entirely decrease.
This method is perfect for use in trend markets.
Fixed ratio style
It calculates the trade size depending on stop-loss levels and permissible dollar loss amount per trade. During losing trades, the dollar loss amount is the same regardless of the stop-loss size.
For example, a deposit is $10 000, and the collateral is $200.
The first trade is for EUR/USD pair:
- The stop-loss level is 100 pips.
- The total sale value of the one pip is $200 / 100 pips = $2$.
- How many times the total sale value is higher than the pip price with the minimal volume: 0.01 : $2 / 0.1 = 20 times.
- The lot size is 20*0.01 = 0.2 of a lot.
The second trade is for EUR/USD pair:
- The stop-loss level is 200 pips.
- The total sale value of the one pip is 200$/200 points = 1$.
- How many times the total sale value is higher than the pip price with the minimal volume: 0.01 : $1 / 0.1 = 10 times.
- The lot size is 10*0.01 = 0.1 of a lot.
You can increase the risk size (e.g., after the deposit has grown by 10%). The risk size should be smaller than the deposit: 0.5-2%.
This method boosts profit and subjects a low-risk deposit.
Fixed percentage approach
It specifies the risk percentage of the deposit (e.g., 1% of the deposit). The lot size is calculated depending on the deposit and the stop-loss size before each trade.
For example, a deposit is $50 000, and the risk percentage is 1% of the deposit (or $500).
The trade is performed by EUR/USD pair:
- The stop-loss is 100 pips.
- The total sale value of the one pip is $500 / 100 points = $5.
- How many times the total sale value is higher than the pip price with the minimal volume: 0.01 : $5 / 0.1 = 50 times.
- The lot size: 50*0.01 = 0.5 of a lot.
This method is as easy as one, two, three. Moreover, it decreases the drawdown level since the deposit cutbacks. That is why loss exit is delayed. However, the loss depth is to a lower degree.
You can use multiple lot methods and fixed risk percentage methods simultaneously. It increases EA’s potential profits.
What results will be achieved if you apply various approaches? The usage of more advanced money management practices provides higher profits and increases capital equity line shape’s volatility.
Money management is a relevant part of EAs. You should not neglect it!
- Perform EA testing at a standard lot.
- Manage different money management methods or their combinations.
- Move from easiest to hardest.
- Testing will show you the best method for your trading system.
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