Risk Management – When Not To Trade
I have come to the decision this week, to turn off both EA’s on my live account for the foreseeable future, until the drawdown on the account is reduced. The Robominer II EA on the AUDNZD chart has already been disabled for a week.
The reason for this is not so much a lack of confidence in the robots’ abilities, but a recognition of the limitations of using an EA to trade a relatively small live account. When I contacted Forex Goldmine support about the warning displayed on the chart that the account balance was too low to trade safely, and asked them whether $1000 was a safe amount to trade, this is the reply I got:
“Please take that warning seriously. If your account has standard lots, then you should have a balance of at least $2300 to trade .01 lots of just the AUDNZD pair or $4000 for both pairs. There can be many 0.01 lot trades opened over time, and they add up. That is why we strongly insist that users follow the balance guidelines. Doing any less is not trading the system correctly and could potentially lead to a margin call.”
So as I am not prepared to risk more than $1000 on this initial account (and I am sure that there are many traders out there who are in a similar situation) I have decided that the only way to limit the risk is to reduce the number of trades by shutting down not only the Robominer II but also the No Loss Robot for a while. I currently have 12 trades open in the market, a total of 0.12 lots or AUD$1200 in currency on margin.
To put that in perspective, that’s the price of a cheap used car where I come from! Of course the fluctuation in currency prices is small enough that the total drawdown at present is only $242.32, but given that I should probably have at least $10,000 in this live account when I take into account the 9 currency pairs which the No Loss Robot could potentially open trades on, I think it is prudent to pause the EA’s until the number of open trades is reduced. The AUDNZD is currently trending long against the Robominer’s sell strategy on this pair, and although the EURCHF has turned around and is now heading in the right direction, I am happy to sit back and watch the trades for a while, with take profit stops in place, and allow the market to take its course. If I left the EA’s online they could potentially open another 12 trades in the next few weeks, and if the AUDNZD continues trending that could open me up to the risk of a margin call.
The No Loss Robot has 4 trades open at the moment, on AUDUSD, NZDUSD, USDCAD and USDCHF. The AUDUSD and NZDUSD are currently trending short against the No Loss Robot’s long trades, and the USDCAD and USDCHF seem to have peaked and may now be ready to go back in the right direction for NLR’s short trades. I guess the rally in the USD was shortlived, or at least that’s what I’m hoping!
Either way, I believe I can ride out the storm if I batten down the hatches!
