In general, the essence of the trend advisor algorithm is quite simple – this is the discovery of a rather small (compared to the above types) number of transactions in the direction of the trend. The subtle point is that there are still no clear parameters for determining the trend and its change, independent of the particular trader. You can easily be convinced of this by going to any thematic forum and looking at the battles about “buying” now or already / even “selling” =) Well, we got distracted.
As you understand, the basis of such advisers can be laid in various ways to determine the trend, so do not be surprised if the trend is still up for you, and the adviser is already opening a deal for sale. The main thing is to understand the mechanism underlying the adviser. However, this has already been written above.
The essence of the trend advisor algorithm is quite simple – it is the opening of a fairly small number of transactions in the direction of the trend.
For example, a forex robot can determine the direction of a trend in the following ways:
- Breakdown of the daily high/low. For example, you have the bottom and top of the candle the previous day. The top is 1.1000 and the bottom is 1.0800. If the price has hit the top, the adviser will consider that the trend is up and will look for opportunities for purchases. Brokedown – the adviser will consider the trend to be a downtrend and will look for opportunities for sales.
- The use of trend indicators. The essence is about the same: The price is above the moving average – we are buying. The price is below the moving average – we sell.
- The use of volatility indicators. If you conduct a small study of price charts, you can see that long-term trend movements are often preceded by the following situation: price movements become calmer (volatility decreases), and then the price “shoots” in this direction by a significant number of points (volatility increases).
Therefore, where a big movement shot, according to the adviser, the trend is going there.
In terms of trend forex advisors, in fact, there is nothing special to say. General recommendations are as follows:
- Trading in volatile time (if it is intraday) and in liquid currency pairs (this is relevant for all advisers). In the “rotten” time and on illiquid assets, trading with this type of adviser will turn into a lottery: you will open a deal, put a stop and take and wait. Either wait “where it will explode” at the opening of the European session, or wait until at least a couple more people come to the 3 people who are already selling it and then, perhaps, the price will go somewhere. In my opinion, this simply makes no sense when there are good liquid instruments with powerful price movements and narrow spreads
- Compliance with risk management. After you have tested the adviser with standard parameters and made sure that, at least in history, it “works” – calculate the lot size so that the maximum series of losing trades do not eat more than 20% of your deposit. I will give an example of the calculation:
Stop Loss – 10 p.
Take Profit – 20 p
The maximum number of losing trades in a row is 8 pieces
Our deposit is 400 $
20% of the deposit = $ 400 * 0.2 = $ 80 – so much we can lose on a series of losing trades
Now we calculate what our maximum stop loss in dollars is:
$ 80/8 deals = $ 1 – so much we can lose in each deal.
We remember that our stop-loss is 10 p. Therefore, according to our risk management rules, the maximum cost of 1 pip is:
1 $ / 10 p = 0.1 $
Such a value of 1 point corresponds to a volume equal to 0.01 lots. Here we will trade them with such parameters. The calculation method is universal – you can simply substitute your numbers.
If, for example, your recommended item cost is less than $ 0.1, then you need to:
- either increase the deposit,
- either test with a lower stop loss
- Or try other parameters of stop loss and take profit in the hope that the series of losing trades will be smaller (not 8, for example, but 6). But, I repeat, it makes sense to do this only if the adviser showed profit with standard parameters on the test. If you didn’t show it, it’s easier to throw it out and test it different than to “play with the parameters”. There isn’t enough time to “play around” with all the advisers =)
It’s better not to increase the maximum% of the deposit with a series of loss-making transactions – I understand that it sounds like “for the weak”, but it’s psychologically dumb to watch when even 20% of real money is eaten, and even if it’s bigger, it’s not at all a sensation. It is not a matter of willpower or the presence/absence of tolerance for stress, but of elementary practicality: it makes no sense to disturb your body once again if you can not disturb it.