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MetaQuotes Software Corp.
MetaQuotes Software Corp.  

New article How to reduce trader's risks has been published:

Trading in financial markets is associated with a whole range of risks that should be taken into account in the algorithms of trading systems. Reducing such risks is the most important task to make a profit when trading.

One of the dangerous forms of a local trend reversal are the crashes and spikes with a large amplitude in a short time. The jump of one currency in a pair always means a collapse of another. It is especially dangerous if there is an open position and the direction of the collapse is unfavorable to it. In this case, a small deposit may be completely lost.

The essence of the problem

  • Rates of price collapses leave no time for market participants to adequately respond to them.
  • The modern analytics offers no mechanism for identifying dynamic structures inherent for rapid price collapses.
  • If there is an open position, the market participants are completely defenseless during price collapses. It is quite difficult to detect a collapse at an early stage and even more so to respond to it, since the main movement peak has already passed or the market is blocked due to panic in the chain of brokers and banks.

As a result, the market participants suffer huge losses. For example, on May 6, 2010, the Dow Jones index fell by 1000 points in 6 minutes, while, according to expert estimates, the market lost about a trillion dollars.

The more recent example (Fig. 6) is Brexit, which provoked the collapse of GBPUSD on June 24, 2016 by 560 points at once. 473 points from them were lost in one minute:

GBPUSD 24/06/2014

Fig. 6. GBPUSD price collapse on June 24, 2016

Author: Aleksandr Masterskikh

I tried the code snippet for "reducing risk related to high volatility at the moment of a market entry" in my own EA, and noticed that zero trades were being taken. Only then I remembered that my expert advisor was a break-out strategy, so this could never be a good match. In any case this article is full of innovative ideas and proves the author has a lot of hands-on trading experience. It made it to my all-time top ten list of Metatrader articles.

Good ideas, but the EA cannot work because these condition will almost never be true at the same time :

     //Simulate the case when local resistance levels are broken by the current price:
       Bid > High[1] &&           //on М1 (smaller scale)
       Bid > H_prev_m15 &&        //on М15 (larger scale)
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