Forum

oldman 2006.07.21 12:53 

Preserving capital in the forex market.

Being new to this autotrading, I desired a way to "Catch" this critter if it ran away (because of some unforseen condition in the market that might hit a weak point in my expert) and started losing my capital while I was asleep...I thought I might set a limit to what I could lose over night.. possibly $100, using $1 pip.

(This goes before the trading section) So, I set up the variable for my min.

int T=OrdersTotal();
double Balp=4500; ///lowest I want my account to go to tonight.
double Bal=AccountEquity(); ///how much equity we have... (this includes the current trade)
In front of this section, I put :
if(T==0 && Bal<Balp) {Comment("Shut down"); return(0);} // don't want a buy or sell now.. we have closed our trade cause we were too low.. (probably)

then the actual checking:
if(Bal<Balp) {
Alert("Balance dropped to " + Bal + ", Shutting down"); //or the comment below or both
Comment("Shut down.... Balance low");
for(cnt=0;cnt<T;cnt++)
{
OrderSelect(cnt, SELECT_BY_POS, MODE_TRADES);
if(OrderSymbol()==Symbol()) // check for symbol
{
if(OrderType()==OP_BUY) // long position is opened
{
OrderClose(OrderTicket(), OrderLots(), Bid, 3,Violet);
return(0); // exit
}
else{
OrderClose(OrderTicket(), OrderLots(), Ask, 3,Violet);
return(0); // exit
}
}
}
}
}
///end of checking 

I have run this, and sure enough when the min hits, it dumps the trade and shuts down with the message..
I am sure the mins, size, etc would have to be modified by each person.

waddauthink?

TheEconomist 2006.07.21 17:29 

This is a "stop loss" script alteration to take care of all trades existent when the minimum balance is touched. However, it's not a capital conservation method, since it doesn't regards the trading method itself (criterias for entry, position sizing and exiting).

TheEconomist 2006.07.21 20:37 

Depending on your trading strategy, stop loss might or not be a capital preservation method. You know what newbies are being taught: full leverage and tight stops 7-10 pips from the entrypoint. When trading like this, the market is basically random and stops touched all the time until you're wiped out... Now with trailing stops, that's another story - stops may cut earnings earlier, but at least they mark profits. .. The key is small position sizing and hedging, cause every trade has it's own horizon and story...so a greater number of trades become potentially winners, simply by allowing yourself more space to move, and instead of closing losing trades you hedge while in the sideways market until main trend resumes...

TheEconomist 2006.07.23 12:53 

You know several months ago when I was striving to understand why I was losing I thought the same about hedging, but I read a pdf book which knocked my socks off and made everything clear (Dirk du Toit - "Bird Watching in Lion Country") ( Contact me at fxeconomist@yahoo.com if you want it ). Even if he dissavous automated trading, and his particular discretionary trading method is very strange , 90% of what you learn in the book is applicable to automated trading... It's a little bit harder for me to explain you what I understood, since it's a "satori"-like experience. .. Suppose you have a longer bearish trend with a trade on it , entered by the sistem on one particular criteria (say some MA cross on M5 chart). If at some point the market has a somewhat stronger bullish countermovement, don't close the first trade, just open the second (say MA cross on M1 chart) . At the end there's a great chance that both trades to be winning: the first trade is NOT stopped by the countermovement, and the countermovement is gained by the second trade. So if the market walks from upper A point to lower B point the result = ~A-B+Countermovement . If this is proper applied, the results should be similar to walking on the derivative (remember that limits example from highschool about how much the distance between A and B points is growing when the measurement unit is smaller). If you make the same thing with 3 trades, 2 short and one long between them, this is much harder to code in the EA, as the first trade criteria is superseded by the second. If you use hedging every trade closes when its closing criteria is match. Many criterias, more trades. .. as the bullish/bearish signal is getting stronger, meeting more criterias, the net bullish/bearish position is increasing.. Say the system opens more and more trades the same way. When it is over, it starts reversing them... So basically when the market becomes sideways the net position should be almost 0. Then the market becomes trendy again and net position increases... This is basically my theory. Now I'm trying to make an EA for this... P.S. Another interesting article linked to this idea is here: http://www.streetauthority.com/terms/multiplemovingaverages.asp