Adaptive Money-Management for Magic-Champ II Expert-Advisor

This Money-Management is only available in the Magic-Champ II PRO-Version!

Up to now the trading system Magic-Champ II has implemented the two most common classic money management versions - Fixed-Fractional Money-Management - and - Fixed-Lotsize per Trade. Now we decided for an update and have integrated another, so called "Adaptive Money-Management".

After we have switched the system live on November 12th, 2009, there were more than 100 profit trades until January 14th, 2010. In the process a considerable performance of almost 67% was achieved.

Thus, a considerable profit accumulated on the account and we were tempted to increase the risk per trade. As we had numerous bad experiences with automated strategies, we have not done that.

Instead we decided to implement a further Money-Management, which increases the risk autonomously depending on the accumulated profit.

Idea: If a system is right in profit, there is a lot more willingness to increase the risk per trade beyond the real level, but always considering the stipulation, that the system must not fall under the actual profit curve, which would have occurred without the new MM.

Realization: A so called TEILER (DIVISOR) is introduced. Before every trade the accumulated profit is divided by the divisor and the achieved amount (the fictitious risk) is compared with the risk, which would arise with the next trade with normal application of the FFM method. If the divisor result is higher, the new risk per trade will be equal to the risk due to profit/divisor.

Advantages: If a trading system runs sustainably profitable, the accumulating profit will increase disproportionately. The profit curve, which can be achieved by the normal Fixed-Fractional-Money-Management version, is over topped many times.

If there is a drawdown stage, the profit curve will start again on the "normal" profit curve, which would have occurred without divisor. As soon as the risk of profit/divisor is less than the normal risk in % per trade, the initial FFM procedure is again applied.

Disadvantage: The risk per trade possibly increases so much that the loss per trade will be too high for the personal well-being.

Scenario: In the following you will find a presentation of an account trend with classical Money-Management without divisor, compared to different adaptive MM with divisor.

Starting capital: 5.000€

Risk per trade acc. to FFM: 2,5%

Assumed profit per trade: 0,83% (this corresponds approx. to the Magic-Champ PL Ratio)

In the following an example illustrates, which effect this adaptive Money-Management would have on the Magic-Champ II,

Backtest #1 // 01.01.2008-31.12.2009 / 2% Risk per Trade / without adaptive Money-Management

Backtest #2 // 01.01.2008-31.12.2009 / 2% Risk per Trade / including adaptiv Money-Management with Teiler 7

Backtest #3 // 01.01.2008 - 31.12.2009 / 2% Risk per Trade / including adaptiv Money-Management with Teiler 9