(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).
Sometimes things are better said as a video. I picked up this video yesterday and thought I'd share it. Its a really helpful way to understand how currency trading are bought and sold on the largest financial market in the world as well as how it influences other asset markets too!.
Most of the time my forex accounts operate with minimal interference from me. I get on with my day and the accounts busily work away in the background 24 hours a day, five days a week.
But that does not mean I don't get involved with them at all. It’s important that you keep an eye on the accounts and see how they are doing and be able to make decisions about them, if you have too. I will share with you how I operate my trading, so you have some guidance and how margin % helps you keep an eye on your account too.
What is margin level %? This is calculated by your equity/used margin x 100%. . The closer you get to using 100% of your margin the closer you get to being stopped out. You always want a healthy margin. At least 500, over 1000 is better, when we are running large lot sized trades.
My daily strategy.
So, 80% of the time I let the automation do all the work. iX focuses are helping us earn more money and we pay for their knowledge, insight and experiences to trade on our behalf. For busy professionals looking to see their money work harder for them, then why not! Daily, I check my drawdown and my margin % to see how the account looks. A couple of minutes of my time. I'm happy when my with a drawdown of 30-50%, I’m comfortable with that now. As you can appreciate, we need to have active trades to make money. I also watch my margin % which anything over 2000% I do not even think or worry about. I get on with my day!
When the margin % is getting close to 1500% I will start to pay a bit more attention and see for myself what is going on with the currency pairs. Not in a stressful way, just more of an awareness. What are the expectations from currency movers, what macro-economic activities are going on and coming up that could impact our trades. Again, I will not do anything, I'll just put myself in a 'more observation and tracking' mode. I am just being cautious.
When I'm just below 1000% and economics indicators are not clear then I'll think about options open to me to start thinking about. When you are here you are making more rational, unemotional decisions and will make a clearer judgement. A plan to have just helps you keep calm. Options like a) add capital, b) close trades, c) reduce lot size to reduce risk. They are all viable options and I choose the one that feels most comfortable.
As the margin % starts to fall its then up to you when you want to take precautionary action. 300% is for some, others it is too low. When margin % is getting close to 100%, your MT4 app will start to flash. It an indicator to you to do something to save your account. If you do not your broker will take control and close trades. You have lost your decision making on the account. It’s too stressful to be there and you don’t make great decisions.
I'm sure you are asking if I have been close to a 100% and what did I do? Yes, once. I got to 250% and felt I needed to start managing the account and making decisions. I chose to close a large sell trade which meant a loss, but I increased my margin % back to 400%. That move left me room for the currency pair to recover and replenish my account. The currency pair turned around, trades began to recover, some trades closed in profit and some in loss but we were back into healthy margin % again. Beside that that closed trade, I did make a tiny profit on the eventual closing on all the other trades involved. So, a small loss overall but I was happy with the eventual outcome.
In all my time with using an automated service this was the first time I had taken action and I felt I made the right decisions at the time. With hindsight, I wish I had not closed that trade but when we are trading, we have to remain in 'reactive mode'. We cannot predict the future. The loss happened and I quickly recovered that loss through new trades set in the following weeks. Your mindset for trading is important. Have a read of my blog on my first year of trading and my learnings.
It’s now March 2020, and next week marks the end of the month, so I’ll be sharing my march results.
To understand your MT4 app please see read this blog post.
The commentary I write is not financial advice, it is meant to help others with their self knowledge and growth.
I serve people who want their money to work harder for them instead of it sitting in the bank.