Money Management Chips for Overclocking a Deposit
"People are divided into three categories: those who can count and those who cannot count."
Acceleration of a small deposit. 100% per month or more. Which of us did not dream about this? The dream is so sweet because I want to make money here and now without laying an apartment. However, overclocking is always an increased risk. No other way.
But there are a few tricks, unobvious strategies of money management that can either reduce or optimize these risks. 90% of traders do not know about them. And this will be the topic of our webinar.
What will happen at the webinar?
Do not expect from a webinar of trading systems. They will not be. This time we will focus on the methods of managing positions, risks and order sizes. Without complex formulas, it will be the essence of the approaches.
From the webinar you will learn:
- What to do if you then earn, then merge;
- Techniques to reduce risk per position;
- How easy and simple it is to calculate what percentage of the deposit is worth risking for maximum returns without draining;
- The main principle of acceleration;
- Well, and a bunch of things, as usual))).
Watch the webinar in the recording:
Money management chips for overclocking a deposit
Many of you have heard about the popular topic of “overclocking a deposit” on Forex, which various gurus of the “near market” want to present as a separate strategy.
In fact, a quick increase in the deposit does not depend on the chosen trading system - any of the thousands of methods presented on our website may be suitable for it - it is much more important to adhere to certain tactics of money management. This will be discussed in the material presented at the webinar.
Why and who needs an overclocking deposit?
A deposit in the Forex market is a kind of initial capital, the size of which determines the profitability, degree of risk and the choice of type of strategy. Investors with large amounts may be satisfied with guaranteed income from bank deposits or be limited to the risks of buying government and corporate bonds. The stock market or options futures, where risk can be regulated by hedging, can offer greater returns.
The Forex market, for the most part, attracts traders who do not have a large start-up capital, who seek to build it up to a size that makes it possible to move to the “Rentier League”. Some set more realistic goals: to quickly achieve daily, weekly "acceptable" earnings in a short time, so as not to go along the long road of producing statistics with the subsequent search for investors for work as the manager of the PAMM-accounts service.
- The article contains tips on using balanced, optimized and justified risks, methods for mitigating them in case of a high probability of a negative outcome.
Livermore rule or saw profitability
In theory, the trader expects that the acceleration of the deposit will bring a constant increase in equity, which will reinvest capital and constantly scale the profit. In reality, the yield curve shows a “saw” similar to a flat exchange rate. The account for a long time "revolves" around the same figure, the trader loses money as soon as he reaches a certain amount of profit.
- To turn a profit saw from a negative aspect into a positive one, use the “resistance level” of equity as a signal to withdraw profit.
In general, when dispersing a deposit, the more withdrawals of earned funds, the better. For example, Jesse Livermore (Memoirs of the Exchange Speculator) withdrew 50% of earnings after each successful transaction.
Filtering and optimizing signals
Each trader who tested the strategy and trades on it, after some time begins to determine the moments or prevailing indicator signals when transactions with a high probability of profit (win rate) are scheduled. If the trading system is multicurrency, you can always identify the most profitable pairs or, conversely, instruments with a higher level of loss.
Winrate is the basic principle of optimizing a strategy for overclocking. If a trader aims to maximize earnings in a short time, he should reduce the number of transactions and pairs, based on the probability of "winning".
Optimization algorithm of a trading system for overclocking a deposit:
- Choose the best setups in terms of high win rate;
- Run the settings for other currency pairs, choosing the best results;
- In the tools found, optimize the tactics by removing part of the deals to increase the likelihood of profitable positions.
Risk of ruin
The main problem waiting for the trader to disperse the deposit is the risk of ruin - the danger of draining the entire deposit. It can be calculated in advance by taking the statistics obtained when testing the strategy, and also periodically monitor the probability of a drain, substituting data from the statistics of real trading in a special formula.
The risk of ruin formula, which determines the chances of losing a deposit, is as follows:
In the calculations, the following are used: percentage of profitable trades, risk inherent in the transaction, and real profit / loss ratio. The formula has already appeared on our website - the ruin risk calculator is available in the "Tools" section.
- The risk of ruin formula is designed to tell the trader what maximum percentage of the deposit he can use when accelerating, depending on the winrate and the ratio of profit to risk.
Open the Risk of Ruin calculator and enter:
- The ratio of risk to profit (or take profit to stop loss, choose real averages from the statement) in the form of an integer coefficient of 1 to 1, 2 to 1, etc .;
Enter the first digit (for profit, for example, 2, if the ratio is 2 to 1) - it should be greater than or equal to the stop, otherwise the probability of a drain is obvious without using a calculator.
The table will help to understand the importance of balance, the dependence of the percentage of funds allocated per transaction on the win rate (strategy effectiveness) and the profit / loss ratio.
It is calculated for a 10% investment in foreign currency (for example, lot 0.1 with a leverage of 1 to 100 with a deposit of $ 1000). The second column shows that if the loss and profit are equal, the trader will merge 100% if he does not provide at least 60% of profitable transactions (WR 60%). In this case, the probability of deposit loss is only 1.7%
Why is the investment size chosen at 10% of the deposit? According to the canons of money management, real risks should never exceed 25%. This axiom is proved by the practice of many famous traders, the mathematical justification of risk is given and calculated in detail in the works of Ralph Vince.
The higher the "margin of safety" in the deposit and the lower the investment in the transaction, the more likely it is to "stay alive" in the Forex market under unforeseen circumstances and drawdowns, even at times when the winrate decreases.
Pay attention to the tables calculated for 5%, 2% and 1% of investments - they make it possible to nullify the probability of a drain even for cases when profitable trades are only 55% higher than the number of loss-making positions.
When dispersing a deposit, especially when deciding to increase the lot during reinvestment, do not forget about a series of losing trades in a row. They can significantly reduce the deposit if the trader does not reduce the lottery in the hope that the next trade will bring profit.
The probability of getting a consistent loss-making series is even with 80% (grapnal) performance. As can be seen from the table, the grader trader can get 7 stop-losses in a row, even with a probability of less than 1%. At the same time, holding the same lot size as after the first stop will result in a 100% drain.
The main misconception of traders - overclocking a deposit is directly related to the tactics of increasing leverage or trading “for the whole cutlet”, i.e. maximum use of the deposit. The above tables clearly show that the key to "longevity" of any strategy is to reduce the size of the order.
- To disperse a deposit, a trader should strive to open a smaller lot, and to fix a larger profit.
Scalping is not suitable for overclocking a deposit; choose a medium-term strategy on hourly, daily candles. Large take profits are much more effective at spinning up a deposit and, most importantly, increase winrate. The higher the timeframe, the more reliable the signals are - an axiom of the Forex market.
Increasing the timeframe and position holding time opens up the possibility for the trader to reduce losses by entering in parts.
- Divide the selected lot size into a proportional number of parts, enter a small volume according to the main signal; the rest - on additional signals of the trading system.
The above example shows the construction of a pyramid, where the "standard" trading lot is divided into 5 investments of 20% each. This means that the trader reduced trading risks by 80%, because when a stop loss is triggered, he loses only a fifth. With the advent of the remaining pyramid transactions, you can transfer the loss limit to the zero zone by setting a stop loss at the average transaction price.
Benchmark - drawdown
At the webinar "How to stop merging on Forex?" we have considered a chip that improves the performance of any trading system. A trader can combine trading on a demo and live account as follows:
- A demo account is used by the trading system until the first major drawdown, after which the transactions begin to be duplicated on a real account until the moment the minus is fully worked out.
Drawdown increases the likelihood of subsequent work of the trading strategy as a plus, since the process of generating losses and profits is cyclical, and the profitable sections are a priori longer. The strategy has been repeatedly tested and successfully used by investors in PAMM accounts, so experience can be safely transferred to overclocking a deposit.
There will be fewer transactions, but the trader can increase risk parameters to compensate for the "shortfall" in profit.
Risk diversification through correlation
Diversification is a common tactic for investing in financial and commodity markets. Investors distribute funds by collecting a portfolio of assets whose rates are moving the same, but rise and fall at different speeds, which can increase profits and protect the deposit from “destruction” during the crisis.
A similar approach can be applied when overclocking a deposit by dividing the lot into several parts for investing in correlated currency pairs.
- Find correlation coefficient close to unity modulo currency pairs and make several simultaneous transactions on different instruments, one signal on the main instrument.
Despite the coinciding trends, other pairs can be much more volatile and bring more profit than the main trading asset.
The fall can also be different and it is quite possible that if a stop is triggered on one of the currencies, the others will still be in profit - these positions should be closed manually, without waiting for the loss to form.
If a trader wants to try to disperse a deposit using inflated risks, then the option often used when trading in the futures market is suitable for him. It consists of three blocks:
We create a pillow of profit, trading with ordinary risks,
We trade with high risks, risking ONLY a pillow of profit,
If the pillow is drained, we create it again with low risks,
We trade with even greater risks, risking block 2,
After the peaks of profitability - we reduce risks and relax.
In the Forex market, there are many strategies that use the dynamic size of stop loss, determined by: volatility, the position of the curves, indicator points, closing prices, candlestick highs / lows.
We select only signals with a small stop from the trades according to your strategy. This will increase the risk of a single position. Signals with a big stop - just skip. We trade signals with a small stop 3 times a large lot.
Despite the lack of formulas, the material presented proves the mythic assumption that overclocking a deposit is a scalping strategy with a leverage of 1 to 1000 and transactions for the entire deposit. The topic is popular, therefore, a lot of material has been published on it, some of which is similar to the casino roulette approach - “put it on everything”.
In fact, there can be any trading system for overclocking a deposit, provided that the tactics of inputs and money management are correctly worked out. In any case, this does not remove the risk of merging the entire deposit, falling into the trap of emotions, and so on. Use overclocking only as a last resort, while setting specific goals and real tasks.