Risk management is an essential component of any trading system. There are numerous rules and "elements trading success", without which it is impossible to provide consistent and profitable trading in Forex. And each of these "Hammurabi laws" contains an immutable rock of risk management. Some experts consider risk management one of the "three pillars" of successful trading, along with the trading method and a trader's self-discipline. Rashid Umarov Rosh believes that the main tasks of traders are the following: An experienced developer of automated trading systems Ilia Gontmakher also supports the idea of the critical importance of risk management: You can have a great design, build a magic castle with emerald green roofs, but without foundation it will fall with the first gust of wind. Of course, a single foundation is risk enough - you can't live in it. But you can't do without it. But you begin to build a house with foundation, and when creating a trading system you erect walls first. And very often forget about the foundation. An expert management neural networks Leonid Velichkovski also thinks risk management is one of the fundamental rules of trading in financial markets. He believes neglect of this rule may lead to the following: I mean, if you open a too big lot volume. However, a certain proportion of traders, even realizing the full importance of management management, do not always behave reasonable. This is because of the desire to make a quick profit or have a fast revenge after a series of losses. There is a risk that the trader can "marry the position". This occurs when a trader becomes a hostage of a certain opinion, which begins to play against him. In order to avoid systems situations, some traders begin to work with risk managers. Risk manager may prohibit a trader management trade on certain days, for example, because of his or her emotional state. This helps to reduce trade and non-trade risks of a trader. Unfortunately, not all traders can afford to have his or her own risk manager. But is it really needed? And can a trader himself act as his own risk manager and impose a variety of restrictions? To do this, strictly observe the rules of your money management and focus on the drawdown of your trading system, while adding certain robustness. The regular participant of Automated Trading Championships Yuri Zaitsev states the close relationship of risks with a trader's psychology: Everyone needs his or her own individual version, but there is, of course, some common recipes. Roughly speaking, we must not risk the amount we require for food. We shouldn't borrow from a bank or borrow from friends, so that to trade these funds then. Ilia Gontmakher says this is the human factor and gives advice to private traders of how to reduce the psychological pressure: People can hardly know exactly how they will behave under stress, illness or serious trouble - life is unpredictable. Typically, a small private trader combines all in one person - analyst, trading manager and operator. This approach is fraught with problems, even for experienced managers: Usually, such actions lead to complete loss of deposit. Therefore, large organizations always have a separate risk manager, who not only gives advice to traders, but has full authority to not allow a trader to make a too risky deal. The most vulnerable to the negative effects of psychological factors are traders who trade manually. Although automated trading cannot fully guarantee security. Even in automated trading programs Expert Advisors trade volume is set by a user. Unfortunately, only few private traders can afford to hire the services of a professional risk manager. That's the way it goes. Systems would like to advise to those who cannot i. First, this is a universal rule for financial markets, where no one is protected from losses. Secondly, it risk psychological pressure and thus may someday save you from losing your deposit. Evaluating trade risks is another important task for a trader. This will determine how stable and successful your system will trade. Naturally, each trader has individual system of systems assessment. The calculation is based on the drawdown of a trading system management the number of open orders. If you use the leverage of 1: Of course, if my trading system allows that, I increase the trade leverage, but I never use more than 1: In fact, when we use a leverage from a dealing center, we borrow money from this DC. It means trade your money, rather than borrowing - and sleep well! Ilia Gontmakher shares the secrets of his own risk management system: Including the choice of risk level, i. The whole process looks like this: By running it on historical data, I determine maximum losses obtained in the past. Knowing this, I define the permissible level of risk for this particular system. However, we must clearly understand that the market is changing. The algorithms that worked fine yesterday, may stop working tomorrow. In this situation, losses can easily exceed all earlier highs. So, what I'm doing: I always work with two or threefold safety factor, and if a system fails i. The developer of multicurrency Expert Advisors Nokolay Kositsin believes there will be a boom of such EAs on the upcoming Championship. In this regard, we decided to ask the heroes of this publication whether risk management is needed in portfolio trading. It all depends on the number of tools that a trader uses, as well as drawdown for each instrument. It also depends on the profit factor for each symbol based on the drawdown for this symbol and the number of simultaneously open orders. All this should be used to calculate lot to open for each instrument. Portfolio trading doesn't eliminate the requirements of risk management, but on the contrary - it complicates them. Systems to risk assessment for each member of the portfolio system, you must also evaluate their correlation. Otherwise it may happen that at a critical point, all the systems of the portfolio will bring losses at the same time. Risk, no calculations can fully insure against this trading. So I also use portfolio stops, that is an unconditional stop of all systems of a portfolio when the total loss reaches a certain value. Less than a month is left for registration for the Automated Trading Championship This means that soon we should expect the high-speed, tough fight among Expert Advisors with a high degree of risk. On the one hand, as correctly stated by the third prize winner of the ATC Vasiliy Lavrinenkothe situation can be compared to Formula-1 and commercial delivery of cargo. And on the other hand, in the heat of passion you can completely lose your trading. Yury Zaitsev believes that in the Championship we will not see systems with reasonable risks, which is required for becoming a winner. InI liked the system of Alexander Topchylo, which applied money management for three independent systems, and each system managed only its specific part. Ilya Gontmaher also expresses the special nature of trading in the Championship: On the one hand, when determining the winners by the final balance, participants have to work with quite high risks, otherwise it is almost impossible to win. On the other hand, too much risk will lead to crash. You do not risk money at the Championship, still management unpleasant. Traditionally, a huge audience watches the battle. In general, if an Expert Advisor has a certain working range of risks, I would have worked on the upper limit of this range, but not exceed it. In short, risk is a must here, but if you overdo it, you can repeat the fate of Icarus, the Greek mythological figure. We'll see who of the Championship participants will follow the above tips. May the best one win! Leonid Velichkovski has already participated in the Automated Trading Championships. In this interview, Leonid talks about the most common myths and misconceptions associated with neural networks. During this time, we have received applications from people. We ask all the participants to hurry up submitting their Expert Advisors and carefully risk out the closed information fields. Half of the registered participants haven't filled out fields with closed private information - they will not be allowed to participate in the Championship. Risk Management in Automated Trading [ ru ]. Create a trading system Create an appropriate money management system Think over the appropriate risk management An experienced developer of automated trading systems Ilia Gontmakher also supports the idea of the critical importance of risk management: TRADE YOUR OWN MONEY AND SLEEP WELL! Interview with Leonid Velichkovsky: Automated Trading Technical Analysis Robots and Indicators MQL5 Strategy Language How to Write the Trading Robots Source Code Systems Trading Signals About Terms and Conditions Privacy Policy CopyrightMQL5 Ltd.
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