Increasing Signal Lot Size Safely
The most dangerous factor is the DD (drawdown). In most signals the DD seems lower, because they hooked up the signal to MQL5 database, only some days or weeks ago.
So the DD value you see, its not actually as old as the account. You can check out accounts with 6-8 months history, but if you click on the Equity tab you will see that data is only a few days (or weeks) old.
Only a handfull of siignals can stick with 10% DD you are saying above, its very difficult to do so.
So, whats out for the danger of DD increasing to values that any kind of lot multiplication will destroy your account.
The most dangerous factor is the DD (drawdown). In most signals the DD seems lower, because they hooked up the signal to MQL5 database, only some days or weeks ago.
So the DD value you see, its not actually as old as the account. You can check out accounts with 6-8 months history, but if you click on the Equity tab you will see that data is only a few days (or weeks) old.
Only a handfull of siignals can stick with 10% DD you are saying above, its very difficult to do so.
So, whats out for the danger of DD increasing to values that any kind of lot multiplication will destroy your account.
Oh, that's good to know. I didn't know that the drawdown history could be shorter than the signal's growth history. I'll keep an eye out for that.
I was just using 10% as an example. I agree that most signals that have been around for a while have had a 30%-50% drawdown at some point.
I was mostly curious about the effect of having lower leverage.
If I have half the leverage of the signal provider but then I double the adjusted lot size, then (as far as I understand) draw down should be the same, but the risk is still increased.
I was making sure that I have a correct understanding of the risk involved, so I'd still appreciate feedback on that :)
If you have lower leverage, it will affect your copy ratio, you need to have the same leverage in order to copy a signal correctly.
If you keep half the leverage of the signal, you will have half the copy ratio you could have with same leverage, so that's not doing the trick.
Higher leverage though it won't affect copy ratio or DD.
I wouldn't go for lot size increase on any signal because its dangerous, believe me.
Thanks for the advice so far :)
I'd still appreciate feedback on the details of my understanding of the risks involved in increasing the signal lot size, specially when my account has lower leverage.
Thanks for the advice so far :)
I'd still appreciate feedback on the details of my understanding of the risks involved in increasing the signal lot size, specially when my account has lower leverage.
MorpheusZ, if your account has lower leverage, then you can't copy a signal correctly.
If you want to increase lot size, that's something you will do at your own risk, it is highly unadvisable.
MorpheusZ, if your account has lower leverage, then you can't copy a signal correctly.
The signal can be downsized for safe copying (default mt4 implementation).
If you want to increase lot size, that's something you will do at your own risk, it is highly unadvisable.
I understand, I'm just trying to quantify and get a better understanding of this risk and hopefully in the process make others who stumble across this thread more aware of it
Depending on stop call levels, there could be cases where upsizing a higher leverage signal on a lower leverage account would lead to a system that is less risky than using an account with matching leverage.
MorpheusZ, if your account has lower leverage, then you can't copy a signal correctly.
If you want to increase lot size, that's something you will do at your own risk, it is highly unadvisable.
Eleni Anna Branou:
Why to increase lot size is unaddvisable? I thing that it depends of the money that subscriber wants to invest. If the provider have $1000 account and the subscriber want to invest $10 000 then he has to increase lot size or he has to find 10 good providers. My opinion is that it is better to invest in 2-3 providers with good reputation and long history instead of 20-30 all kind of providers. But I am new in this, so I will appreciate any feedback.
No ioio55, you've got it all wrong. If you've got 10.000 and the signal provider has 1.000, then you will copy this signal by almost 950% ratio (if you put 95% in the signals participation tab).
What MorpheusZ was saying is that he want to increase this original copy ratio, in order to take even bigger trades.
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I'm sharing my thoughts for feedback and potential correction. Please let me know if any of my calculations or understanding of terminology are incorrect.
My understanding is that the biggest risk of increasing a subscribed signal lot size is getting a stop out at draw down spikes, so here's how I'm attempting to manage this risk.
Say a signal has a max deposit load of 5%, max draw down of 10% and a 1:500 leverage.
Let's assume the following:
- balance sizes for my account and the signal's account are identical (after adjusting for the 95% used deposit)
- my account has a 1:200 leverage and 80% stop out level
Not sure if the following value has a name, but for now I'll call it "stop out load".
Stop out load = 1 - draw down - stop out level * deposit load
If I understand stop out correctly, then it can happen IF AND ONLY IF "stop out load" is at 100%.
Also, my understanding is that deposit load is calculated as margin / balance.
For simplicity, let's ignore the rounding problems that come with the minimum lot size and minimum lot increment being 0.01.
Using the mt4 lot sizing logic, the signal's lot will be downsized to 40%. I'd expect the following:
- max draw down of 4%
- max deposit load of 5%
- min stop out load of 8% (1 - 0.04 - 0.8 * 0.05)
- I'd make 40% of the signal's profit
My plan is to manage the lot sizing risk primarily based on the expected min stop out load.
Let's say I'm comfortable with going with a lower stop out load (up to 50%). If I then amplify the lot sizes to 5 times of their original value (0.1 lot from the mt4 adjusted signal lot size => 0.5 lots for me), I'd expect the following:
- max draw down 20%
- max deposit load of 25%
- min stop out load of 40% (1 - 0.2 - 0.25 * 0.8)
- I'd make 200% of the signal's profit
Obviously I need to keep an eye on the actual signal performance. A signal could promise a specific draw down or could have a low historic draw down but could end up having something much larger.
I'm just trying to check if I'm correctly considering all the mathematical risks associated with increasing the signal lot size.