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Risk Management Made Easy
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Member Since Apr 18, 2015  2 posts Ronny (Phoenix137) May 08 2015 at 16:44
Hi Ronny

Thanks for contacting me. I don't have a lot of information to work with in giving you some feedback, like the period over which the account has been trading and the total number of trades. But I think it is fair to say that if a system has consistently delivered an LLS of 4 trades, then becomes erratic and the LLS increases, then 'something' has changed and needs investigation. If you are confident that nothing has changed in the way you employ your trading strategy, then perhaps market conditions have changed. Look at the AUDUSD for example, a commodity based currency riding a commodity boom in recent years, but now under pressure as metal prices fall away. Take a look at how AUDUSD volatility has changed. In February 2013 ATR peaks were around 0.0079, February 2014 ATR peaks 0.0097, and now ATR peaks reach 0.0121...a 53% increase in volatility that's almost certain to impact stop-loss settings.

I am not certain that I would use LLS alone to determine if it's time to stop using a strategy, but at the very least, it would prompt me to halt trading whilst I investigate further. This is precisely what you have done, and in that sense, LLS has served the purpose for which it is intended...to alert you when things appear to be going wrong. Risk Management has done its job!

What has changed since you began trading the strategy?


Hi Gary

Nothing has changed with my trading strategy. Your explanation about risk management reminds me to when I first started my forex trading journey. I learnt, backtested, and forward tested a couple of the free trading systems on Forex Factory. When the trading strategy worked, the authors would feel very proud and kept focusing on the winners or just posted winning trades. However when the strategy stopped working then the thread just died. No further explanation. So I think that your LLS might give us traders a clue when to stop using a trading strategy or at least reduce our position size.
Thank you.

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