Let’s confirm all the steps we have achieved so far:
- We back tested our algorithm on the first 5 pairs and were profitable year after year.
- We then continued to back test the remaining 23 pairs out of 28 and were profitable year after year.
- We have now forward tested with a demo account on all 28 pairs and were profitable.
We are now ready to join a proprietary trading firm and/or trade with real money.
So the original No Nonsense Forex Method states we risk 2 % per trade if the $EVZ levels are 8 ( now changed to 7 ) or above and our maximum drawdown acceptable drawdown rate is -10% during the year. That gives us room for a total of 5 losses in a row.
(Your floating loss rate / draw down level is an important number to figure out from your data)
With this information alone and basic parameters of a prop firm with the draw down rate allowance of -4% drawdown before your account is suspended, the now suggested 2% maximum trade allowance would be +0.8% maximum per trade and that would allow you 5 losses.
So now you need to look at your data to figure out how many losses you can endure on your campaign to reach your profit targets. If you are working with a proprietary trading firm that allows a draw down rate of -4% here are some risk per trade numbers to consider:
|MAX DRAWDOWN:- 4%|
|RISK PER TRADE||Number of Losses|
So you can now calculate a scenario of how your much your risk level should be to meet the proprietary trading firm requirements for the draw down level based on your back testing and forward testing levels.
Please remember that the above numbers of risk per trade are divided between two orders, one which gets taken off at the first ATR and the other when your algorithm states to exit.
If you want my recommendation – I recommend a low 0.2% per trade if the maximum draw down rate is -4% because if you have an algorithm that is profitable but meets some stormy trading conditions that batter it down you can have a better chance at making it through that.
In addition, the proprietary trading firm that I work with will most likely give you a time extension on your evaluation instead of terminating your account if you are up to the 6-month evaluation deadline.
They are looking for long term profitability traders rather then traders who come in hot so although it will take you longer to meet your trading objectives you will express the one virtue that is lacking in traders which is patience.
Quiz No. #7
Link to the next page if you pass!