3 - Money/Risk management
The terms "Money management" and "Risk management" usually refer to rules for:
- Managing capital
- Managing positions
- Managing risk
A well planned money management strategy should allow you to maximize your gains while limiting your risk. Depending on your money management technique, a given strategy may be winning or losing for a given set of historical data.
The questions below may give you some ideas about the type of money management you may want to use:
Leverage: What is the maximum leverage you do not want to go over?
Leverage is calculated as follows: 1 / [available cash / position value]
To limit leverage, you can either limit position size or increase portfolio value.
- Short selling: Do you only want to take buying positions or do you also want to take short selling positions?
- Keep positions overnight or close them: do you want to never be in position ("flat") before the close of the market each day to avoid the risk of an gap between the previous close and the next day's open (also called an opening gap)?
- Investment timeframe: do you want to use an investment timeframe of minutes, hours, days, or more long term?
- Time restrictions: Do you want to put time restrictions on your system, for example to not open new positions after a certain time of day close to the market close?
- Targets: Do you want to use a target with a fixed value that will close your positions once a certain amount of gain has been reached or would you rather close your positions based on technical analysis conditions?
- Protect your positions: do you want to add protection stops based on a maximum loss amount per position or based on a price level on the chart?
- Types of stops: if you use stops, do you want to use fixed stops or trailing stops with levels that are constantly re-evaluated? Learn more about the different types of stops
- Max position size defined in cash: This parameter only applies to orders to enter the market with the following limitations: checks concerning the "Max position size" in cash parameter are performed at the close of the bar that triggers a position entry in a trading system. Thus, this limit may be exceeded if the order to enter the market is an "at market" order and the execution price level is different from the close price of the previous bar. Max position size in cash may also be exceeded due to gains.
Note that the maximum position size will be asked each time you start a trading system and will override the conditions in the code.
Maximum number of orders what is the maximum amount of orders you want your system to execute per day?
(Ex: one round-turn per day or be more active).
Note that the maximum number of orders can be set via the "Trading Options" menu.