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7.5.8 Money management techniques. Comparative analysis
Category: Money management
 

In previous articles we considered various money management techniques. To make it more obvious and to perform comparative analysis the results for every technique represented in one chart are demonstrated below. The obtained results let us make a conclusion that the most profitable techniques, as it could be expected, are trading with all funds and trading with optimal rate. But it is worthwhile to say that a starting strategy was initially with high profit expectations. In other words, trading strategies with other expected payoff indexes can be more loss making.




7.5.7 Money management techniques. Trading with fixed proportion
Category: Money management
 

All the above stated money management techniques approach to a problem of optimal balance of risks and profitability only from the one side – either limiting risk or maximizing profitability. Even technique of trading with secure rate is not good enough to settle both tasks. The problem is also that at the initial stages with small deposit one has to acquire more pips than by the following increase of volume.




7.5.6 Money management techniques. Trading with secure rate
Category: Money management
 

Secure rate technique is intended to reduce drawdown attributable to trading with big fraction of the amount on a trading account as it often happens that huge loss series is difficult to withstand from a psychological point of view especially if the funds tend to initial and even to a less value. In case of optimal rate trading the system drawdown was $6 000 or 73,7%, that was paid off over and above by max profit per the considered period. It should be mentioned that in most cases trading with optimal rate of the amount on the account will be resulted in fundamental system drawdown to more than 50%.




7.5.5 Money management techniques. Trading with optimal rate
Category: Money management
 

Trading with optimal rate is a money management technique that allows realizing maximum available profit and not loosing much herewith. Optimal rate according to Ralph Vince is an interest that is the most profitable in case of one and the same trading strategy. In other words optimal rate is trading with fixed rate producing maximum profit. Ralph Vince in theory demonstrated on charts similar to the illustrated below that optimal rate of funds for every rate to play with a coin would be 45%. Anyway, trading strategies may provide different indexes of expected payoff, thus optimal rate will vary.




7.5.4 Money management techniques. Trading with fixed rate
Category: Money management
 

A technique of trading with fixed rate means trading with volume that is constant in percentage ratio with a deposit. Fixed rate and fixed lot are generally very similar with the only exception that the first technique responses very flexibly to increase or decrease of a trading account balance.




7.5.3 Money management technique. Fixed lot trading
Category: Money management
 

A Technique of trading with fixed lot is quite obvious and simple in its application: all trades are made with equal volume, for example, for 1 lot, and the volumes are not changing irrespective of whether a strategy is profitable or loss making. It is generally a major money management technique used as a basis for all others; all the pros and cons are inherited by the associated techniques. The fixed lot can surely mean different values in relation to the balance of trade. For example, for one and the same account of $1000 the trade with 0,1 lot would be a proper value and the value of 0,5 would be half of funds that significantly increases risks.




7.5.2 Money management techniques. Trading with all funds
Category: Money management
 

Trading with all funds means using maximum available volume in every deal. It is maximal available as most of dealing centers and banks place restrictions for the case when a loss making trade could increase the amount on a trading account. Such restrictive requirements are referred to as Margin Call, i.e. when the certain limit is achieved (generally from 10% of account amount) loss making positions are forcibly closed.




7.5.1 Money management techniques. Analysis strategy sample
Category: Money management
 

The best way to select optimal strategy of money management at the Forex market is to analyze results of a chosen trading system by evaluation of every technique separately.

 

A breakout strategy using 2 standard МТ4 indicators was applied to perform clear analysis:

 

1)      combination of 3 20-period Bollinger Bands with different deviation values - 1, 2 and 3 correspondingly

2)      14-period RSI oscillator with levels marked at 30 and 70




7.4 Locking
Category: Money management
 

Locking is a technique of insuring against risks at the Forex market by means of opening two differently directed positions by the same contract volume and in terms of one trading instrument. The notion “locking” is derived from “lock”. The name excellently reveals the technique itself – when differently directed positions are set the aggregate profit or loss remain fixed in spite of the price movement direction. Locking is moreover one of the ways to engage additional income. It is common practice to differentiate positive, negative and zero locking.




7.3 Hedging
Category: Money management
 

The notion hedging means decreasing risks by set of uniform market instruments. The major distinguishing feature of hedging is that an objective of this technique is minimizing potential loss rather than realizing extra profit. 





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