Risk management or control involves more than just determining position size or setting Stop Loss levels.
Some strategies boast an impressive 99% win rate, utilizing grids, Dollar Cost Averaging (DCA), or even Martingale. While these often perform well, they can completely wipe out an account if market conditions turn unfavorable.
Therefore, finding a method to maintain low risk while still achieving a 99% win rate can lead to valuable strategies.
Let's begin with a typical scenario, where we initiate short positions as the market rises.
What can we do if the size of opened lots seems too large?
Here's a straightforward method to limit the total size of opened positions.
As illustrated in the image above, we can take advantage of the next minor dip to consolidate the two short positions into a single new short position at the Break Even level.
This approach decreases the overall size of the open positions and effectively adjusts the entry price of the initial short to a more favorable rate. This allows us to wait more comfortably for the price to decrease. If the price doesn't decrease, we can still use this technique whenever multiple positions are open.
It can be done automatically
I implemented this strategy in the new version of BFG9000 (1.431). Here is how it looks like when I place a short at the lowest price and let the market go up.
In the image, you can see multiple short positions. New shorts are added as soon as BFG9000 detects a reversal pattern. After Short4 the system looks for a possibility to reduce the risk of the most recent positions. After Short 5 it closes 5,4,3 and opens Short 6 with the lot size of Short4. After that it contiues to wait for the price to reach a level, where it can close the remaining positions.
I found this strategy to be quite powerful. It decreased the duration of the trades (compared to previous BFG9000 versions) and reduced the drawdown (since the total size of positions is kept small).
When does this strategy has its difficulties? It would run into problems after shoking FOMC news. For example after the 29th February 2024, where the Gold price was surging for 2 weeks without any dips. Buy please download BFG9000 and test it in the simulator to discover that it is nearly impossible to place a short or a buy trade that can't be handled easily by BFG9000.
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