ReInvestitions-Money-Management
The trading logic remains the same- but new money management features will be introduced
This Money-Management is only available in the Magic-Champ II PRO-Version!
After almost 16 months of successful live-trading on ForexInnovation’s public accounts we decided to introduce some enhancement.
However, first of all: We DID NOT modify the actual trading algorithm!
Below you will find an overview of the changes and add-ons.
Last-Signal-Time
So far the system always closed all open trades at one specified closing time. This had two disadvantages: First, during the last year it became evident that sometimes it makes sense to have different Friday night closing times for long trades and for short trades. Second, in some cases trades had been opened just a few minutes before reaching the closing time and thus have been closed only shortly after they had been opened.
From now on, the Last-Signal-Time determines the point of time by which no more new trades will be opened. All signals generated starting at this point in time will not lead to trades anymore.
Trades which have been opened before reaching the Last-Signal-Time will kept open until reaching the trading closure time. In this way it will be possible to define a window of, for example, three to four hours between Last-Signal-Time and the trading closure time, during which all trades are managed as usual.
maxRiskPerTrade
The feedback of our customers was clear without ambiguity: In most cases, maxRiskPerTrade was not helpful at all but created confusion instead. This is why we removed maxRiskPerTrade.
Modifications of the Adaptive-Money-Management
The Adaptive-Money-Management has been divided into long and short. From now on, every trading direction will only consider its own profits and also received its own divisor (Divisor_Long and Divisor_Short).
If, for example, the long trades of the Expert Advisor generated a high profit, whereas short trades produced losses, the Adaptive-Money-Management could lead to a higher risk for long trades, but would definitely stay unchanged for short trades, due to the losses.
Until now the Adaptive-Money-Management was related to the maximum profit of a currency pair which was also basis for calculating the divisor. The results of our live-trading indicate that this method has a few disadvantages: The overall profit of EUR/USD derives from short trades only. The overall profit for GBP/USD was only generated by long trades. However, due to the Adaptive-Money-Management, the risk had increased for both long- and short trades, even though their results had been completely different.
New ReInvestment-Money-Management
As a result of the considerable differences among different currency pairs, as well as the differences between long- and short-trades of a single currency pair, we decided to implement an additional type of money management.
This additional type of money management uses three variables and differentiates between long- and short-trades.
1. Basis-risk: This variable defines the percentage of the generated profit/loss which will be added to your Basis-Risk (or deducted in case of a loss).
2. ReInvest in %: The variable ReInvest defines how much in % of the occurred gain /(loss) is added on top /(subtracted from) the basis-risk.
3. maxRisk in %: This defines an upper limit in percent, based on the current account balance, of the maximum risk, which will not be exceeded by the Expert Advisor. Should the Magic Champ II deliver outstanding results in one direction could theoretically even exceed a predefined limit of 6% maxRisk, it would stay at exactly these 6%.
This new type of Reinvestment-Money-Management for the first time allows for a totally independent risk control per currency pair, per direction, regardless of the account balance and solely based on the performance! If the account balance would grow as a result of a good performance in short trading EUR/USD, and at the same time long trades in EUR/USD would produce losses, the risk for EUR/USD long would decrease slowly, whilst, due to the good performance, the risk for EUR/USD short would increase!
In our opinion, considering long- and short trades separately makes much sense and has not been possible so far without manual readjustment, even with FFM. When the account balance increased and the risk in % has not been changed manually, all directions, regardless of their performance, increased the risk.
Here is an example that illustrates the effect of the ReInvestment-Money- Management:
Account balance 12.000€ // Profit Long 4.000€ // Loss Short 1.000€ // Basis-Risk for both directions 300€ // ReInvest in % for both direction 20% // maxRisk 10%
resulting risk next LONG Trade = 300€ + 20%*4.000€ = 1.100€
resulting risk next SHORT Trade = 300€ + 20%*-1.000€ = 100€
On February 28 2011, we adapted ForexInnovation’s two live accounts, on which we are publicly trading the Magic Champ II, to the new Adaptive-Money-Management. A detailed description of the two accounts and links to download the set-files can be found on the page about Performance-Real-Accounts.
Below you will find two screenshots displaying the current results of our live accounts (in the same way they can be reviewed on myfxbook), which nicely illustrate the benefit of applying the new money management on our accounts.
If you have questions related to this update please feel free to contact us!
