52% return EA - leverage questions

Trading Discussion Risk Management Practices
1

Hi traders!

I have been a member here for a loooooong time but have spent a few years away, before starting a live trading account around this time last year (January 2018).

In 2017 I started to get interested in automated trading again, so I taught myself enough coding to turn a simple idea into an EA and started testing, before going live in early 2018.

The EA is very simple; when a fast ma (10 or 20 depending on pair) crosses above/below a medium ma (50) and slow ma (90), and they all line up in the same direction, the EA goes long/short with a stop set around recent support/resistance and a TP related to this (could be 0.5 SL, could be 2 SL etc).

I and two friends deposited $500 each, prepared to never see it again, and set the EA running on 20ish pairs and timeframes, slightly tailored for each. Over the course of the year, we monitored each pair’s performance and canceled pairs that lost money. All trades are set at either 5% or 1% risk depending on their expected performance.

At the end of 2018 we have a 52% roi, other stats shown below:

Total Number of Trades 939
Total Number of Winning Trades 573
Total Number of Losing Trades 365
Total Number of Break Even Trades 1
Trade Win Rate 61%

Average Winning Trade $31.71
Average Losing Trade -$47.71

Largest Winning Trade $321.77
Largest Losing Trade -$139.06

Total P/L $755.19
Average P/L Per Trade $0.80

Return On Investment 52.69%

I’m pretty happy with a 50% ROI, I used to believe think that forex would deliver thousands of times ROI and I could live a life of luxury without lifting a finger once I found the ‘holy grail’ but my goals are a bit more realistic now after years of following the markets.

The issue I have is that while the system has returned $755 after fees, I have also paid out $970 in commission. This tells me that the conditions I have set for trades is reliable and gives me the confidence to continue but how can I minimise my costs?

I’m using a pepperstone edge account with good spreads, but high leverage seems to be the culprit.

I’m interested in how others manage leverage, account and position sizes. What are your thoughts on how I should change my approach in 2019?

Happy to share my EAs and any info you want on my system.

Cheers
Chris

2

Hello Chris, welcome back!

Net P/L = $755
Commissions = $970

Gross P/L = Net P/L + commissions = $755 + $970 = $1,725

From this we can calculate that:

  • 43.8% ($755/$1,725) of Gross P/L results in profit (Net P/L) for you, and

  • 56.2% ($970/$1,725) of Gross P/L results in profit for your broker.

You are essentially asking: How can you increase your percentage, and reduce your broker’s percentage (say, to 60% for you, and 40% for your broker).

Everything else being equal, your average net P/L per trade, and your average commission cost per trade, are BOTH proportional to your average position size. That is, if you were to double the size of your average position, without changing your SL or TP, you would double your average net P/L per trade AND you would double your average commission cost per trade. Which would not change your Net P/L as a percentage of Gross P/L.

There are only two ways to shift the percentage split in Gross P/L in your favor:

(1) increase your average gross P/L per lot traded – for example by increasing your TP, without increasing your position size, or

(2) decrease your commission cost per lot traded, which requires negotiating a lower commission rate with your existing broker, or switching to a broker who offers a lower commission rate.

The math is unforgiving. There are no other alternatives.

1 Like
3

Hi Clint, thanks for taking the time to answer.
I had a feeling this was the case but you’ve articulated it very nicely. Part of the way through the year, I reduced my max leverage as I realised that it was only increasing my commission costs by allowing me to enter trades with tighter stops.
I might be able to make some tweaks to risk:reward and I definitely can shop around for a lower commission.
Cheers
Chris

4

Great question and great reply! auspips please keep us posted on your progress.

5

Is there any chance that you would show to us the detailed statements equity graph?