I’ve been reading through the Risk Management threads here and in other forums but am a bit overwhelmed by all the conflicting information around, on the subject, and don’t quite know what advice to listen to.
I’ve tried to simplify what I want and need to know down to three very specific questions, and would be grateful for opinions about them, please.
The background info: I have a very well back-tested and reasonably well forward-tested system for trading the EUR/USD pair. It may work for other very liquid pairs, too, but that’s unimportant, right now. Over nearly 1,000 trades, nearly 800 back-tested and nearly 200 on a live demo account, it’s had a win rate of 54% and a reward to risk ratio of 1.15, and realistic spreads are allowed for in these figures. There are about 15 trades per day that I can reasonably expect to take. There’s only ever one trade open at a time. All trades have a fixed stop loss and a fixed profit target and they all close by the price touching one or the other of these, so there‘s no real “trade management” to speak of after opening the trade.
My three questions follow.
Is this likely to be viable in the long-term or do I need to go back to the drawing-board and find something different and/or better?
Is it realistic to expect that this may get me through a prop firm testing period and hit the qualifying profit target?
Roughly what proportion or percentage of the account should I be exposing to risk on each individual trade?
Lots of good features to your results and strategy - good back-testing and live trials, the win rate is not so excessive as to be likely anomalous or exaggerated, the r:r is realistic.
No, keep going with this strategy.
Cannot answer, no experience with prop firms.
Capital risk depends on win rate and average gain to average loss. Don’t be in a hurry to make money. Grow the account, don;t grow your spending.
I would stick with this. Of course it may be possible over the longer term to refine it a little, perhaps to improve its results slightly, but so far from what you say it sounds both viable and realistic.
Regarding your specific questions of position-sizing and prop firms, there are some very experienced members here who know far more about both of these issues than I do, and their eventual replies will be worth far more than anything I could offer.
Hi Tony, a question, please: does it mean that out of each 100 trades you win 54 times (average win $11.50) and lose 46 times (average loss $10,00), or something like this, some multiple of these numbers but in these proportions of 54 wins and 46 losses with the wins a little bit bigger than the losses?
Yes, there are 54 wins for every 46 losses and at the moment a loser costs $29.94 net while a winner produces $34.43 net, which is 1.15 times as much. The forwarded-tested results aren’t any different, so far, from the back-tested ones.
Over 100 trades the takings are (54 x $34.43) - (46 x $29.94), which is $481.98, or only $4.82 per trade, so taking an average of 15 trades per day, which is a conservative estimate, makes only $72 per day, $360 per week.
I can handle this, and risk $30 per trade without panic attacks, but increasing the position size could make that much more. I don’t have enough trading capital to risk big position sizes, though, so I’m now wondering about getting funding through a prop firm, to try to take things up a level.
Since you’re trading only EUR/USD (I think?) with this, you could even maybe do that by trading 6E or M6E with a futures prop firm whose incentive is for you to win if possible, rather than with a forex CFD one that benefits only when you lose?
Hopefully some of the people here who’ve been funded that way and/or know the industry well will reply.
It sounds very good to me. Any combination with both an R above 1.0 and a win-rate above 50%, net of commissions, must be profitable overall, by definition. You just need the frequency of entering trades to be adequate?
But you said 15+ trades per day, so that isn’t a problem for you.
Tony - this looks like you have a very good strategy here - congratulations.
You have have done some very mindful back-testing and forward testing, with a good sample size and all looks well. Your results are impressive.
To answer your qusetions - here are my humble opinions on your questions (and I do concur with most of the other advice on your thread)
It does appear to be viable - it works, it is your system to make your own - well done do not stray from your rules.
Yes, it can get you through a prop firm challenge. be mind full of the prop firm you choose and that they are reputable and their rules suit you.
NOW THIS IS IMPORTANT - and the main reason people fail prop challenges.
Lets imagine that you take a $100,000 challenge and your maximum drawdown is $10,000. - $10,000 is really your account Not $100,000. You will have the margin/leverage of a $100,000 account but in reality your account is your drawdown.
So think in terms of the percentage risk of that $10,000. This is upto you to decide - your risk tolerance and safe tolerance. Many traders risk 1% -2% BUT that must be of $10,000 (your drawdown) not the $100,000. Prop firms do not usually explain this!
I am not a set TP trader - I do not have a crystal ball - Let your winners run, unless of course, you can’t be there and you have to set and forget. You didn’t mention your preferred time frame, 15 trades a day suggests you use lower timeframes, not that it matters, if you if you use higher timeframes you may have to set and forget. Anyway, your strategy seems to work well - why change it?
Having said that - the only thing we can control is our risk STOP LOSS
All the best with what l looks a good strategy. Stay cool
Many thanks for all the very helpful comments above!
I haven’t got as far as looking at individual prop firms yet, probably I’ll start looking soon.
Thanks, yes, I think I follow the logic: if the maximum drawdown before failing is $10k then the account is only really $10k.
With a 54% win rate I could have a losing run of 10 trades but that would be extremely unlucky, and not a disaster if I do, with only the prop firm entry fee written off. So I could maybe try this with a slightly riskier position size than I’d use with my own money. Just until I pass, even if that’s not at the first attempt.
I’ve only made about $950 trading with this, so far (most of my 1,000 trades were only backtesting, not live), but that’s presumably plenty for a prop firm fee or two. I haven’t looked at the prices yet.
Yes, it’s a fast one.
I understand! I backtested several combinations with quite big differences in the results, actually.
In future it may be possible to close half the trade and let the other half go further if it does, maybe moving its stop loss to breakeven.
I have all these twists and turns ahead of me and am only at a very early stage with this.
When you do, the comments of @Johnny1974 above will be very helpful to you.
Also, read some of the recent threads in the Prop Firms section of the folder, using some judgment about who really knows the subject, who is full of hot air, and who is aiming to promote a specific company.
Your strategy sounds solid with that win rate and R:R ratio. For prop firm challenges, I’d suggest sticking to 1-2% risk per trade to stay safe and avoid big drawdowns. Just keep following your plan consistently, and you’ll do fine.
I meant 1–2% of the maximum drawdown limit, not the full account size. That’s the number that really matters in prop firm challenges, since going over it fails the test.
Stay cool 
