Discussion of article "Risk and capital management using Expert Advisors"
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New article Risk and capital management using Expert Advisors has been published:
This article is about what you can not see in a backtest report, what you should expect using automated trading software, how to manage your money if you are using expert advisors, and how to cover a significant loss to remain in the trading activity when you are using automated procedures.
The second important stage in building a suitable risk and capital management strategy is to find a way to cover the possible losses. The desired profit will never be made if, after each significant loss, we start from the beginning of the investment plan. The constructive idea is to divide the capital into two main parts: the active capital and the reserve capital. The active capital is the one deposited into the main trading account, where the expert advisors are used to make a profit. The reserve capital is also deposited into a capital account, but it is not risked at all. This passive capital stays and waits to be used only to cover possible losses. In the following table, this strategy is presented for a particular case. The capital is divided into two equal parts from the beginning. When the capital is doubled, half of the profit is withdrawn from the active account into the reserve one.
Author: Cristian Mihail Pauna