(Please note - this is my chosen methods and what I’ve done and works for me – its not what you have to do! Everyone is different and will approach the same topic differently.)
(note: complimentary blog post on this topic is How to use margin % as a guide and tool.)
Automation trading is great, but we will still need to take an active role in understanding what are accounts are doing so we can make our money work harder for us. However, this does not have to be hard and requires a few educated tools to have at your disposal to know what to do when you need to do something.
So, to help show these steps lets make up a scenario. The scenario is that your MT4 says the following (this is an example)
Understand your Margin Level % and know your drawdown
So you wake up in the morning and you see these figure. How do you interpret them? Your first key figures to check are:
What do these numbers tell me?
Well first they help me get clear on the health of my account. The Drawdown tells me that if I closed all the trades right now, that would be our loss, 1478. It also tells us how much active money is being traded in our account. The Margin Level % tell us about how much capital we have left for trading. The higher this number the great capital is available. It’s worked out by dividing Equity by Margin. (1774 / 186 x 100).
So 968% suggests we have a good amount of capital available to set further trades if we need too. With a comfortable 968%, I’d be watching my trades now, and just keeping an eye open on what is going on but not taking any action.
Know when you need to start considering your options
So, let’s say the drawdown deepens and my margin level % falls to 700% and there isn’t a clear direction where the market is going. I’d start to feel like I just need to pay more attention to this now and start to feel like I need to think about my options.
This can vary from person to person. In the beginning I started to consider my options closer to 1000% but with education and a stronger mindset to trading, I’m comfortable at getting to 500% before I consider my options. This part is up to you! What we are doing at this point, is getting ready for taking action on our automation account (if we need too). Ideally, we want the automation to take care of itself but it’s important to stay on top of its activity.
Its also that this point that many start to question the intent of the automation and the professional traders and it’s a natural emotional progression because we see activity going one way and we seemingly are going the other but we aren’t the professionals, we don’t see what they see.
Know what options you have to choose from
So, our margin Level % is falling. Our balance is also falling – things look concerning!! You are not sure what the outcome is going to be, and you certainly don’t what a margin call on your hands. So what options are open to you.
a) You can add more capital. A quick and simple activity to help raise your margin level % and give you more space. To protect your account raising your margin level % is a good option for you.
b) You can close a trade. I’ve done this move because I didn’t want to add more capital and chose to take a loss on an old trade which I knew would take ages to get back too. Doing this raised my margin level % and helped my account. Which trade to close depends on several factors but when I was deciding I was prepared to sacrifice old trades so I looked at them and you could take out a higher LOT size trade with a small loss and help release more margin level %. Higher LOT sizes hold more margin so another useful option when considering closing trades. You can close more than one trade if you want. Its just takes some decision making on your side.
c) Reduce your overall risk by reducing your LOT size. This is also an easy adjustment to make but its one I tend not to choose but I share it as an option. You see with automated trading the likelihood of going into a grid strategy is higher, so we use the larger LOT sizes to help us cover any loss of small lot size trades. When you see it in action, its pretty cool! Large lot sizes are a short-term goal to help accumulate profit to cover loss of other trades and to at least break even or close in a profit. I’ve seen a number of grid strategies come into play and I’ve always broken even or come out with a profit. It feels like a cleanse when you see a load of trades close on your account! You are then excited for the next chapter of trading.
d) If you have another trading account – transfer additional money (in the short term) from it if the margin level % on that account is healthy and comfortably over 1000% and you are not seeing any heavy market changes in the short term. I have moved money between accounts when margin on one account was low. Its quick and the transfer is immediate. You can always put it back once the margin level % releases back to a healthy level again
Decide which is right for you.
My commentary above are just options. You can do whatever you feel is right for you, but these are options that have worked nicely for me and helped me deal with the couple of moments of automated trading where you need to take a bit more interest in your account and be prepared. I’ve used 3 of these options. I hope to discover more as I get better at this. Ultimately it helps the ‘emotional’ part of your trading journey.
(The commentary I write is not financial advice, it is meant to help others with their self knowledge and growth).
Drawdown is a measure of how far your account falls from the last account high to the low before you get back to the old high again. So, if your account topped out at £1,000 then dipped to £900 before recovering to £1,000 again, you've had a 10% drawdown.
Drawdown can be the source of lots of concern for a newbie trader. They see a minus number at the top of their MT4 app and get really concerned they are about to lose that number. So, I want to put your mind at ease with what I’ve learnt about drawdown and how to have the right mindset around it. I’m not an expert in this but this is my experience I’m sharing with you and if you need more technical information then I’d suggest do your own research around this topic too!
1. Drawdown is part of trading. It will happen every day when trades are set. Its part of the process. When new trades are set you may be lucky, and it jumps right into profit and you hit your target profit straight way, but I’d say 99% of the time drawdown happens first. Its going to be a part of the trading picture going forward.
2. Drawdown means that trades are in play and your money is being actively used to create the money growth activity that you want. If we didn’t set trades or have drawdown we wouldn’t be trading or seeing any profit. If this is not what you want to do then find another income generation method that suits your tolerance levels.
3. I make a note of the dollar at the 10% - 30% drawdown and keep those in my head when I am looking at moving Trade value at the top right of your MT4 app. This helps me roughly know where we are in the drawdown and help you see. For example, my account balance is valued at US$3362. 10% of that is US$336 and 30% is US$1008 so when I look at my MT4 ‘active money’ value I know roughly where I am within these numbers.
4. Drawdown doesn’t equate to losses unless all those trades that are showing loss are closed. They only count if they are closed. When they are in play, I have no problem with seeing the drawdown.
5. Become comfortable with your risk appetite. If you don’t like a lot of risk, then either don’t trade and find another passive income generating method or keep your account small so you are only risking what you can comfortably afford to lose.
If you are manual trader then your drawdown percentages and your risk appetite will be very different, and you will have to create your own risk management plan around your trading plan. There is a lot of wisdom out there on the internet on this.
NOTE: Past results can be verified and if you look in the tab called 'My Results' - you will see my results I have been sharing. Past performance is not indicative of future results. If you are interested in registering or getting more information on this trading system, please message me.
The images below show how the active trade values can vary in a timeframe. The first image is with around 14% drawdown. The second image is 10% drawdown. In an evening the drawdown has reduced and the AUDJPY is trading bearish!. I'm comfortable looking at this. Would you be?
I serve people who want their money to work harder for them instead of it sitting in the bank.