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REAL BINARY OPTIONS ROBOT - FREE AUTOMATED ALGORITHMIC TRADING SYSTEM

PROFIT AND RISK MANAGEMENT

Learn how to maximize your profit and lower your risk. There are several factors which determine the profitability and risk levels. Learn about your possibilities and define your profit and risk margins. Risk and profitability optimization can lead up to 50% more monthly profit.

Profit and Risk Factors

FACTORS WHICH YOU CAN NOT AFFECT

When using a trading robot or a fixed trading system based on rigid rules, there are four main factors, which you can not affect and which determine the profitability of a trading system or a robot.

  1. Number of trades in specific period of time.
  2. Win ratio in specific period of time (number of winning vs. losing trades).
  3. Return rate given by the broker.
  4. Sequential stability of winning and losing trades (equity curve oscillation).

 

NUMBER OF TRADES

Higher number of trades will produce more profit when compared to lower number of trades with the same win ratio. Generally speaking, higher number of trades is better, as long as win ratio is above break-even level, which is 58.2% on 72% average return rate given by the broker.

WIN RATIO

Higher win ratio will produce more winning trades and less losing trades and will increase profitability, as well as add-up to sequential stability of a trading system. Higher win ratio is better, regardless the number of trades. Every additional percent above 58.2% on 72% average return rate greatly increases system profitability. A good trading system should have consistent above 61% win ratio. This means that the system is profitable and that it also provides some space for additional optimization with different money management techniques.

RETURN RATE

Return rate is the payout percentage which you get from the broker when you make a winning trade. Usually return rates vary from broker to broker for different assets and can reach anywhere from 65% to 85%. Average return rate calculated for the broker currently supporting my system is 72% - which is somewhere in the middle range when compared to other brokers, but still enough to be able to make some decent profit.

SEQUENTIAL STABILITY

Sequential stability is a decisive factor for money management optimization. A stable sequence is the one which shows equal distribution of winning and losing trades and is plotted as an increasing linear equity curve - as opposed to equity curves with bigger oscillations and longer winning and losing sequences.

 

FACTORS WHICH YOU CAN AFFECT

Even if the system itself is fully automatic (robot), there are several factors, which you can affect, in order to increase profitability and lower the risk. These are as follows:

  1. Per-trade size - in relation to total account balance (the percentage of your total account balance which you invest into each trade).
  2. Money management approach - linear or exponential (you can always invest the same amount into each trade or you can lift the stakes as you account balance grows).
  3. Investment and withdrawal strategy - in relation to profit and loss margins (how much you invest and what is your profit goal before making a withdrawal).

 

PER TRADE SIZE IN RELATION TO ACCOUNT TOTAL

Percentage of your total account which you invest into each trade can increase the 'return on investment' in case of good sequence of winning trades. It can also increase risk of losing your initial investment in case of longer sequences of losing trades. With trading systems which have relatively stable equity curve movement and 60% - 65% win ratio, a low risk investment is at around 2%-3% per-trade size, 3%-5% is mid risk and above 5% is high risk. However even high risk approach can be very rewarding if compatible money management approach is applied.

 

MONEY MANAGEMENT

There are many different possibilities of money management and decision what system to apply greatly depends on the trading strategy. With my robot there are two possibilities that work best:

  • LINEAR MONEY MANAGEMENTLinear money management means you are always investing the same amount into each trade. Linear money management carries less long-term risk and the risk is lowering over time as the account balance grows.
  • EXPONENTIAL MONEY MANAGEMENTExponential money management means you are always investing the same percentage of highest total account balance. Exponential money management maintains the same long-term risk level and the risk is fluctuating from your defined level and above when sequences of losing trades are encountered.

 

INVESTMENT AND WITHDRAWAL STRATEGY

First of all you have to decide how much you will invest into trading. You should always set the limit where to make a withdrawal. Making periodical withdrawals of all or part of your profit is a crucial part of long-term profitable trading approach. Depending on your money management system and trading system success in specific period of time, you can reach 100% return on investment with low to mid risk approach in about two months.

Investment and withdrawal strategies can be very different - however, it is a very good rule that once you reach 100% return on investment, you withdraw your initial investment amount and continue trading only with the profit you made. This way you secure your initial investment and no matter what happens you can not make any loss. From there on you can only make profit.

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