Preventing unreasonable losses in an EA - page 2

[Conor Mcnamara]

ciccio terrone #:

I see this question as a risk management topic, and to answer you'll need to tackle your definition of disruptive. When you create a strategy (under the condition that backtests are done correctly), you should end up with a system that is winning on the long term and with the expectation of some losses (that you can measure with metrics like the recovery factor). Managing risks means understanding when your strategy doesn't work anymore as expected, and trigger emergency breaks. 

Personally I use emergency breaks (i.e. I stop teasing for a period of time) when my individual strategies loose too many times in a period of some days or when my whole portfolio (i.e. all my strategies together) falls after a certain threshold in a given day.

That's a good approach,  and I'm also doing that for uncommon trading strategies that I'm not fully confident in. In the backtest I conducted, I saw good consistency from 2023 - Now. But before 2023 everything went to failure. It makes me wonder if it's because it's overfitted, and a sign of a strategy ultimately failing. I'm no longer trying to think about "sorting out" losing trades, that's ultimately not a good idea like Fernando mentioned. The key thing is to have an EA making good decisions only, as much as possible. Pulling the breaks when something goes way out of kilter (like multiple consecutive loss trades) is the only good idea for when it comes to safety beyond having an efficient system and normal risk management.