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Performance test of Money Management (MM) strategies

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eurotrader
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eurotrader  
According to a recent article published on mql5.com titled ATC 2010: The Evolution of Expert Advisors in 2006-2008, the profitability of Expert Advisors has grown every year. One of the trends noted in the article is the growing use of Money Management strategies by Expert Advisors. Money Management (often abbreviated to MM) is essentially any method that adjusts the risk of each trade so as to maximize your long-term profits. In this article we demonstrate three MM strategies and their relative profitability. The strategies:
  1. Fixed lot size: This is essentially the most basic strategy where the money risked in each trade is constant, thus decreasing overall risk as account balance increases. E.g., risk 1 lot in each trade.
  2. Fixed risk: The strategy here is to keep your risk as a percentage of the account balance constant, thus increasing money risked as account balance increases. E.g., risk 5% of balance in each trade.
  3. Fixed risk Martingale: Martingale is the classic method of doubling your bet after every loss in order to recover all losses and profit. We run this strategy with trade volume adjusted to account balance (as in strategy #2).
The tests are run from January 1st, 2008 to November 30, 2010 on the EURUSD pair, timeframe M15. The Expert Advisor used is the same for each test run and the initial account balance was 10,000 USD. Here are the results:
  1. Fixed lot size (1 lot): 20,768 USD profit (+208%), 230 trades, -12% maximal drawdown
     
    Results for fixed lot size

     
  2. Fixed risk (10% risk): 1,598,648 USD profit (+15,986%), 230 trades, -27% maximal drawdown
     
    Results for fixed risk

     
  3. Fixed risk Martingale (10% risk): 1,093,721 USD profit (+10,937%), 231 trades, -24.12% maximal drawdown
     
    Results for fixed risk Martingale

    Note: this strategy would have gone bust after about 137 trades but was saved by a risk-limiting routine in our code
     
In conclusion, a fixed risk strategy (#2) ensures significantly greater profits than a fixed lot size strategy (#1) and is less risky than the Martingale strategy (#3) which almost went bust. Performance of each of these strategies (and many others!) will vary based on the nature of the trading strategy itself, e.g., risk/reward ratio, win rate, etc. So happy testing!
The Evolution of Expert Advisors in 2006-2008 - Automated Trading Championship 2010
  • championship.mql5.com
In anticipation of the new Championship, we decided to assess the dynamics of the evolution of Expert Advisors, based on the previous competitions. The objective of this research is to determine the development trend of the community of Expert Advisor writers, from a professional point of view. We have tried to trace the dynamics of the complexity and efficiency of Expert Advisors for the years of 2006-2008.
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