Parameters of money management: the key differences between the manual and algorithmic trading

Parameters of money management: the key differences between the manual and algorithmic trading

Effectiveness of the trading strategy is not a result of setting rules and parameters for entry/exit from a position. These are rather secondary indicators. The key role in this process is played out by the rules of money management, as well as by your psychological endurance. If you combine the working algorithm with the correct risk indicators, only in this case you will get a positive result from the trading in the financial market.

Fix api trading in a manual mode differs significantly from the algorithmic approach. Someone would say that the first method is more effective, and someone will say that it is the second one. Today, I do not set myself the goal to find it out, but to analyze them from the side of risk control in the transactions on the fix api forex market.

Parameters of money management consist in control of investment funds in the context of each transaction, and the total capital, as well as the maximum set risks. Adjustment of these parameters should be a separate block in each trading strategy and be formed on the basis of your expectations and boundary criteria of money loss in absolute value. Correct adjustment of these parameters will allow you to save the capital and gradually multiply it.

In order to understand what kind is the most effective, one should choose the key ways to manage the capital of each of them.

Money management in a manual mode:

  • Setting risks based on a specified percentage for each transaction. This is the most common form, which consists in the fact that you already know where the Stop Loss level will be located and, based on this, you choose the position volume that would not exceed the specified parameter when the risk is reached. Thus, if your capital is $10,000 and the risk per trade is 1%, and at the same time from the predicted entry point to the Stop Loss level there are 100 points, the volume should be no more than 0.1 (for fix api MT4 terminals).
  • Set risks based on the reverse trading signals ( ). Additionally, fix api trader often do not set Stop Loss levels (which I strongly do not recommend to do), and the exit from the operation is formation of reverse trading signals. In this scenario, you will be in the market for the longest time possible based on the predicted input. However, the risk of a big loss increases and such operations cannot always be fully controlled.

Money management in the algorithmic approach:

  • Setting the risk based on the specified percentage for each transaction – the same as in the manual mode.
  • Setting the risk based on the reverse trading signals – the same as in the manual mode.
  • Trailing stop of the opened positions. The robot can constantly accompany already available open deals and thereby squeeze out the maximum profit. In a manual mode, the trailing stop is also there, but it is the robot that manages it more flexibly, because you can prescribe the conditions for its control.
  • A given maximum risk for the entire capital. An alternative method of risk control is also the fact that the robot can lay the border side of the risk and, in the event of any force majeure situations, to close all positions. Often, traders set the maximum percentage of loss on the initial deposit and if the drawdown reaches a given level, the trading robot closes all the transactions on the fix api forex market, thereby giving the trader an opportunity to analyze the current situation.

As we can see, money management is more flexible when using a robot ( ). Due to the fact that the robot constantly analyzes open positions, this gives you a better chance of preserving your capital. Also, the ability to add conditions will allow both increasing profitability and reducing the current risks. Advantages of the manual mode is that the fix api trader can close the positions more quickly on the basis of the received fundamental data that go against his forecasts and open transactions.



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