When to Stop the Trading System |
At what point should the automatic advisor be stopped? At the moment of loss? But what if the loss is within the statistical framework adopted on the basis of testing? Or if the loss is a one-time anomaly and the system quickly recovers? The psychological factor also plays a role, which pushes either to stop the robot in panic after the first large drawdown, or, on the contrary, wait until the last, hoping to win back the loss.
Everything is simpler: the rules for stopping the Forex market trading system are based on the TS testing results and equity analysis.
Rules for stopping the Forex market trading system
In most cases, according to some signs, you can determine the end of the life of the system even before it brings a loss and make over-optimization. And also, in some cases, a loss is not yet a sign of vehicle problems. When optimizing the system for a period of 60 months, the Forex market trading system lives for about 7-15 months.
Parameters for assessing the viability of a trading system:
Analysis of actual performance versus expected
It is analyzed in conjunction with other parameters. If, as a result of testing, you expect the deposit to grow by 30% over the year, and the system showed an income of 1% per month in the first 3 months, then:
- compare the time frames of the actual and test trading. Perhaps a sharp rise in profitability is yet to come;
- analyze changes in indicators of unprofitable transactions. If on a real account, along with the profit, the losses also decreased in the same proportion, the system works correctly, but conservatively.
Comparison of the maximum drawdown with the allowable
If the maximum drawdown on a real account goes beyond the test value, this is a signal that the system is working with deviations. The decision to stop is made individually (depending on the volume of the deposit, lot and personal risk management). It is believed that after exceeding the drawdown by 50%, the system must be stopped.
Comparison of a series of losing trades with statistical data
Testing showed the maximum number of losing trades in a row – 6. As soon as the series goes beyond the limits on a real account, it is time to stop the robot. This is a convenient approach from a psychological point of view, since a series of 4-5 losing trades is the norm, that is, not a reason to worry. The MT4 tester allows you to evaluate 2 parameters:
- the maximum series of losing trades;
- the average value of continuous losses over the entire period of the system operation.
It is better to focus on the first parameter, provided that it is not an anomaly. But if, according to the second parameter, the deviation from the test value is more than 10% upward, and a similar parameter for profitable trades remains within the normal range, then the Forex market trading system does not work correctly.
It is not recommended to exit the market at the time of a loss (classic mistake). The system will still unfold and will partially bring profit. And here the second classic mistake is the hope that after the profit the system will return to its previous indicators. Will not return if there are signs of its failure. We close the position after an average series of profitable trades and re-optimize (reconfigure) the system.