Tip,
The risk setting on MD is not the actual risk taken. Most risk settings on EA's are just a position size setting. They usually just calculate a percentage of the free margin for placing a trade. MD may try to take the actual risk into account, its difficult to tell, the stop loss amount is not constant, and it rarely goes to the full stop amount.
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rjvw1,
If you do the backtesting, you'll realize the results we have seen recently have been quite good. Go back a year and there were much larger stops that were taken out. All we have seen recently were 50 pip stop losses, which do recover quite quickly. When a winning trade is 10 pips and the system is allowed to double up after a loss, it can recoup a 50 pip loss easily. If the system takes a 100 pip loss it will take longer, and if it takes anouther 100 pip loss while the position size is doubled it will really set the account back for a long time. This does not require a consecutive loss, all it needs is a second, or third, loss, while the position size is doubled.
If you run a larger position size and lose, it will take out a larger percentage of your account, leaving you less capital to use in your recovery. A larger position size will not recover quicker, it will recover slower, because your suddenly working with a much smaller capital base. If you start with $1000 and lose 25% of it, your now working with $750 trying to recoup $250 in losses. If you lose 10%, your working with $900 trying to recoupe $100. Obviously, the smaller loss with the larger capital base will recover quicker.
Further, if you try to run too large of a position size, you will not have enough free margin left to absorb the drawdowns. If your running a 50% position size, 25% doubled, and there is a significant drawdown, you will get a margin call closing all your positions at a loss. Figure, if you run a 50% position size, you have to put up half your account as a deposit in order to trade. If your using 100:1 leverage you have paid 100 pips for a deposit, most brokers require this amount for margin, so you have anouther 100 pips left for drawdown before you get a margin call. This is not something your backtesting will show you.
Further, if MD is run in Aggressive Mode it can open two trades simultaneously, both at the preset risk level. Simply do the math and you can see the peril you put yourself in.
MegaDroid recomends the default setting of 5% up to 10% for conservative trading, smooth equity curve, and easy recovery, and they run about 25% on their own aggressive account, which is a demo account and does show long periods of recovery following large or consecutive losses, and appears to be manually managed, the position sizing varries from year to year, I have seen it as high as 30% and as low as 15%, and sometimes the position size doubles after a loss and sometimes it doesnt.
If you run a large position size be very careful with the Aggressive and Recovery Mode settings. These both have the capabilities of doubling your current risk. Just consider, if your running a 25% risk and the system losses 25% of your account, and then doubles the position size and opens two trades at once at 50% position size each. How long will you survive before you get a margin call? Demo accounts and backtesting dont get margin calls!
Since MD has a very high win rate, and manages to exit most losing trades without major loses, a larger position can be traded successfully and profitably. However, you have to be aware of the limitations and the consequences, and have a plan to deal with these situations.
and it happened a few times now. BTW I run 0.25 live and its working very well. Lets see from here.
