Risk Management for Aggressive Automated Trading System

In this article, I want to show you how an example of a highly aggressive trading system in my portfolio and how I apply money management to it.

In my portfolio of automated trading systems, I have a small proportion of my funds invested in a highly aggressive trading system. This trading system can yield phenomenal returns by scalping for a few points at massively leveraged sizes and generally has a good win ratio due to the parameters in which it trades. However, it's losses can be catastrophic, they can completely wipe out your account.

You're probably asking why anyone would risk their money in a system like this. The answer is that you can still make money on this if you have a money management strategy for this type of system and this is what I want to share with you in this article.

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Exhibit A - The Hamster

The Hamster is an extremely aggressive automated trading system for the Forex markets. It is completely customizable and it's these configuration files which are circulated by the author and other users regularly for an ever changing market. The most aggressive of these configuration files can mean that you make a 50% return on your account every week. You can get very good runs with no losses and I've seen an account from 2016 last until August 2018 running a particular configuration set (trader wouldn't divulge these settings) which turned $100 into almost $980,000 before it plummeted to $2000!

The most aggressive of these configuration files can mean that you make a 50% return on your account every week

With returns like this, it's no wonder why people are drawn to it. However, risky as they are, if you have a money management strategy, you can play the odds in your favour. Below is the money management strategy

Money Management for The Hamster

For the allocated amount of funds I've dedicated to the Hamster (assume $10,000), I only trade 25% of the capital (ie $2,500) and leave the remaining 75% ($7,500) as reserve funds. After each week, we'll either end with a profit or a margin call (ie blown account). If we end with a profit, we take the total amount (reserve + trading account) and allocate 25% of this to trade as before, rest goes in the reserve account and repeat. If we end with a blown account, we take what's in reserve with anything in the blown account, allocate 25% to trading and repeat. The below table shows 52 weeks of what this looks like assuming we can make 40% every month and take a margin call every month resulting in 80% loss of the trading account. As you can see, we still managed to double our money by the end of the year!

Graph showing Total Fund size as the weeks progress