THE IMPORTANCE OF HAVING LIMITS:
In this article I will explain how to use Cerberus The Equity Watcher to mechanically impose a max daily loss on your trading.
In my 6+ years experience as a trader, I came to the conclusion that the difference between being a profitable trader or a losing trader, lies in the damage that we make in our worst days. If you don't have any way to limit yourself when things start to go badly, then you will inevitably wipe out your account. Let me state this again: this is inevitable!
In recent times we have seen the implosion of Archegos capital which blew up 20 Billions USD in a couple of days. Archegos' CEO, Bill Hwang, had been considered a great trader/speculator for years and was rated a top hedge fund manager. It took only one bad trade to wipe out all his fortune.
If this happens to big funds, the average retail trader stands no chance to become profitable unless he finds a way to mechanically impose a max daily loss on his account.
MOST TRADERS SITUATIONS:
Most traders are in the constant search for consistency. Personally I think this is a myth: consistency is the dream of using the market as an ATM that will give you X amount of dollars every day. This is not how market works.
Market trades in small ranges for days, choppying up everyone and then suddenly it bursts into a trend that lasts only a couple of days, then when everyone thinks that the trend is on its way,it stops trending or it reverses. True opportunities, that offer a great risk reward are there only rarely. This concentrates big winning trades in a few good days.
Losses on the other hand, should be distributed during the trading days more randomly. When you trade well, you have some small losses here and there and then a big win that makes back all the losses.
The problem is that sometimes traders enter into the revenge mode. After 3 or 4 losses in a row, they try to recover them in one single trade by increasing size.
In those situations, the trader is not rational anymore! The drawdown becomes bigger and bigger and suddenly the trader decides to increase size beyond any rational limit and they lose half of his account in one single trade.
Many traders don't realize that there are situations in which you are not a rational human being anymore. When emotions kick in, our monkey brain overrules our rational brain and our decisions become irrational.
This might happen once per month or once per year but, withouth any max daily loss you can lose your account in matter of minutes. For this exact same reason, traders in big institutions have a risk manager that can prevent them from overtrading.
MY SOLUTION
My solution to impose a mecahnical max daily loss, (explained in the video below) uses the following resources:
- a VPS server that must be accessed through Windows Remote desktop
- a productivity software (I use FocuseMe but you can use whatever software you want)
- my EA: "Cerberus the equity watcher" that you can find on MQL5 market
The idea is very simple and extremely effective:
- STEP 1: you start your trading day by connecting to the VPS server, opening up MT5 and by setting a Minimum Equity on Cerberus. Cerberus will flatten all your positions if your reach the max daily loss, and after that it will keep flattening any further position if you attempt to trade again. After setting up Cerberus, you must let MT5 running on the VPS server.
- STEP 2: you close the VPS and you use the productivity tool to block any Windows Remote Desktop until next day. Normally productivity softwares allow you to block an application for many hours, so imposing a block of 16hours will be more than enough. This is easy if you have a computer dedicated to trading only, alternatively you can memorize the VPS login credentials on any app (for instance a Notepad app) and block that app, using the productivity software and avoid storing those credentials in Windows Remote Desktop.
Even if you can block Windows Remote Desktop, to avoid loggin in from any other computer in case of "emergency" you should also store the VPS login credentials in an application (like a notepad) and block that app.
- STEP 3: you trade during the day on MT5 on your local computer. Once you reach the max daily loss, Cerberus will notify you on your mobile and all your positions will be flattened. If you try to trade again, Cerberus will immediately close your positions, if you keep trying to open positions Cerberus will keep flattening them.
This solution is even more effective if you use a trade copier. In that case you will have a receiver EA that should be attached to MT5 running on VPS, this EA will copy the trades that you will perform on your trading platform on your PC (for instance Ninja, or TradingView etc...). Once you will reach the max daily loss, Cerberus will kill all EAs...thus the receiver will be killed and the trades will no longer be copied...and
In this situation you will give up trading, until you will be able to reset Cerberus Min Equity Value, this will happen the next day if you have set up the productivity software correctly.
USING PRODUCTIVITY SOFTWARE CORRECTLY
The productivity software that I use (Focus Me) allows me to create advanced plans to limit the use of any application. So I created a plan that only allows me to use the Windows Remote desktop Connection only 20 minutes per day, and after that I must wait 16 hours to use it again. This way my routine is straightfoward: I switch on my PC and connect to the VPS using the Remote Desktop app. This gives me 20 minutes to set all the parameters in Cerberus (the min. Equity value, and the optiona max Equity value). Once the 20 min. have passed the VPS connection is closed by MT5 keeps running on the server and Cerberus monitors my equity.
Then I have no chance to connect to the VPS until the next day.
THE SENSATION OF TRADING SAFELY
Since I developed Cerberus and I started to use it everyday, my tradig has improved substantially. I never have huge losing days because I want to avoid hitting the max daily loss at any cost.
I also trade with the positive feeling that nothing can go substantially wrong because I have a risk manager watching over my shoulders.
On top of that, in order to be able to trade as long as I want during the day, I want to avoid getting closer to the min. Equity value and I trade more conservatively, this allows me to stay in the game and always have bullets when the real opportunities arise.
