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I have analyzed a lot of Signals and was surprised to see how many of them have very poor or no Risk Management at all. I was also surprised that some of the high risk strategy accounts with high risk clearly shown on MAE graph (a lot of red dots) get high Reliability rating. I think that formula does not give enough rating to the Risk
I thought it would be interesting to have a discussion on what Professional trading is. Here is my criteria:
1. Limited fixed risk on every trade to maximum 1% of the account. The position size will be calculated based on the risk. To lose an account you will have to lose 100 trades in a row.
2. Limited fixed risk on all open trades to maximum 5% of the account. This means maximum 5 opened trades. If all fail, thats maximum 5% hit on the account. Drawdown would also be maximum 5%.
3. Risk/Reward ratio should be at least 1:2 on every trade. I saw some signals claim they have Stop Loss, but it is way far out. For example some put SL 100 pips away to win 10 pips. Thats not a good Risk management. You risking 100 pips to win 10. This is pretty much the same as no SL.
4. Hard Stop Loss on 1% risk. No soft SL. SL can never be moved to increase the risk. The only way SL can be moved is in the direction of the trade for those strategy that use trailing SL. This way you will not going to see red dots on MAE graph.
4. No Martingale, Grid or anything of that nature. This is just a time bomb. Boom and Bust strategy.
I understand some people want high risk, gambling kind of game. That's not what I am talking about here, please do not bring those arguments. I am talking about steady growth approach with the good Money and Risk Management, like institution do.