RISKonFX
DEVELOPMENT, ANALYSIS & TRADE
What is the reason behind RISKonFX?
Our Objectives & Targets Explained...
From a performance point of view, this question could be answered by considering the trading approach which is being employed, its expected success rate, historical drawdown levels, and most importantly the risk appetite of the 'person' trading the account - emotional aspects of trading can be, and typically are far greater than you may take account for. For example, does ones self-control to make rational decisions diminish at the same rate at which their account balance grows, hence an inverse correlation. Could you make a rational snap decision with a $100,000 account at risk when you’re used to trading perhaps a $5,000 account?
These are the types of questions that I would like to address here, and over time I am sure we will see these being answered as the RISKonFX account grows.
About RISKonFX and our Purpose:
As a successful Retail Trader, the burning question which I have always thought about is as follows: “what is the balance between forcing profits by the use of higher levels of risk whilst also giving ample consideration to maintaining stable risk management”. I suppose if I was going to try and wrap this question up within some kind of context then it would result in the two opposing criteria of (1) Profit Maximisation against (2) Capital Preservation. These two ‘forces’ are opposing, yet equally important for all traders to consider. I’d also like to suggest that a common theme among new [inexperienced] retail traders, from my own observation, is that they focus primarily on Profit Maximisation with little thought to the latter. Interestingly, this thought process reverses with experienced retail traders. It becomes evident that successful traders choose to focus primarily on Capital Preservation, rather than Profit Maximisation, and for good reasons too.
This will be a free to follow Retail Account which really does give you more than just statistics and graphs like that of other account tracking websites. With a personal touch we offer articles from James Bell, the account manager, video updates at the end of each month, newsletters with useful hints and tips, social feed updates and provide the opportunity for you to ask your own questions on anything FX related which could be published to help out others.
Objective: A free to follow, public FX account, attempting to demonstrate how a small capital investment of $1,000 can be turned into a self-sufficient income account over several years of trading. This account is a real live account, with a purpose geared towards educational needs, and for the motivation of new retail traders alike.
The RISKonFX Account:
"I want to prove that a $1,000 FX account can be turned into over $100,000. Using fixed risk management by never exceeding a total account exposure of 3.00%, and following a detailed systematically tested trade plan I will attempt to demonstrate that here with a totally transparent verified record of results"
The trading strategy which is being employed has historically provided an average monthly gain of 4R, where 'R' is the percentage (%) risk taken on each trade and remains constant for each and every trade for the month in question.
The risk taken per trade will be at 3.0% - which really is at the higher end of the risk spectrum when considering long term stability. Therefore, the following assumption can be made:
We have over a decade of historical trading results and statistical analysis using the specific trading approach which will be implemented on this public account. The above statistics are averaged results of the returns gained over this time period, and will fluctuate in real time. Although the deposit amount of $1,000 may seem small, it's typical of the deposit value made by new retail traders which is why it has been chosen.
> Projected Average Monthly Gain = 4R = 4 x 3.0% = +12.0%
It all Sounds to Good to be True, Time to talk about Risk:
This is a high risk account and there is absolutely no need to try and cover this up. As with any risk model, the more you push possible rewards, the more you have to push risk. Not only does speculating on FX Markets carry its own inherent risk, but the nature of the risk involved in some instances can be outside of the traders control. A Flash Crash is every day traders nightmare, no level of risk management will protect you from potentially losing a significant proportion of your account - thankfully these are rare, but still a real problem which needs to be priced into the risk of entering this industry when using leverage.
Maximum Allowed Drawdown
20 Consecutive Trades - c.60% Loss
Drawdown is the term used to measure the maximum loss which has been recorded on account. It's measured as a percentage; a 15% drawdown is the same as saying that a trading account has lost a maximum of 15% of it's value at some point in time during its life. Drawdown is perhaps the most important financial measure that we are interested in, it's directly linked to risk. Drawdown can not be avoided, every trader will incur losses at some point in time. From a statistics point of view, as the number of trades taken reaches infinite levels; the risk of loosing 100% of the account becomes certain. Therefore, it's crucial to adapt and move with the markets. A rigid non-adapting trade approach could be a ticking time bomb, what works today might not work tomorrow.
As a headline rule, if the RISKonFX account enters a 60% drawdown then all trading will be terminated. It would be unrealistic to continue trading after having lost over half of the value of the account.
The below chart is representative of the figures to its left. It measures the probability that a linear sequential [string of losses] will take place during a sample size of 1,000 trades (about a four year duration at the current account yield rate) with a 55% win rate (as per the trading stratagy being used here). So, as an example we can see that the probability of 10 losses taking place one after the other is 16.98% over 1,000 trades - this would equal a drawdown of 30%, whilst the probability of a 50% drawdown is c. 0.07%
Probability
100.00%
99.06%
87.41%
60.37%
33.94%
16.98%
8.02%
3.69%
1.67%
0.76%
0.34%
0.15%
0.07%
0.03%
0.01%
0.01%
Drawdown
-15%
-18%
-21%
-24%
-27%
-30%
-33%
-36%
-39%
-42%
-45%
-48%
-51%
-54%
-57%
-60%
Streak Size
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
*Sample size of 1,000 trades with a 55% win rate
