Sunday, January 24, 2010

The TradingBuddy, an EA to Assist Manual Trading Methodologies

Trading manually is often a very stressful and difficult thing to do, traders will often find themselves with the need to do several mathematical calculations about risk, risk to reward ratio and position sizing in a matter of minutes or even seconds. Throughout my experience in day trading I have noticed that often people fail to apply appropiate money management because they are too concerned about their entries and fail to adequately analyze the risk they are putting into the trade and the risk to reward ratio related with their decisions. Often these negligence is what leads to loses in the long term.

Looking at the way in which my "pupils" have traded, I can assure you that many of them have failed to adequately manage their accounts because they failed to do these calculations which are absolutely necessary to enter a position. I also cannot say that I have never been "weak" and entered a position without doing all the necessary math, just calculating the risk:reward ratio "visually" and trading a lot size which I guesstimate to be near the percentage of equity I want to risk. I realized that I tend to do this a lot more in day trading than I do when trading my long term methodologies because things tend to happen a lot quicker.

For this reason I decided to build a simple expert advisor which would help me calculate all the necessary values and help me to quickly realize if a trade has the risk characteristics I desire or if it does not fit my money management profile. What the TradingBuddy, as I named the EA, does is pretty simple. You load it on the chart and input the desired TP, SL and EN (entry) levels of the trade you wish to take along with the desired risk percentage you wish to allocate to the position and the position's type (0=Short, 1=Long). The EA will then do the math and display on your screen (on the top left corner), the reward to risk ratio of your trade, the lot size you need to trade to risk a loss of the percentage you input and the entry you would need to make (without moving your SL or TP) to afford a 1:3 risk to reward ratio. This is the main information I require when I place a trade and having this EA do all the calculations at lightning speed has proven to be a wonderful tool.

There are several great advantages of having this information quickly. I get to quickly evaluate if an entry, TP and SL targets allow me to have a good enough risk to reward ratio, it allows me to see if my SL is too tight and I'm being too greedy (risk to reward ratio extremely low) and it also suggests me an entry with a 1:3 risk to reward ratio which has sometimes come in handy. You also get to know the exact lot size you need to trade in order to risk X percentage of your equity, something which is great to have a very precise money management system. You can also change the input values as you want after you get some results until you arrive at a trade which has the desired characteristics you want.

The TradeBuddy has proven to be an invaluable tool for me and the people I am trying to coach in trading as it provides an effective way to have information about a future trade's money management before entering any orders allowing one to quickly gauge the effectiveness of the trade. If you are interested in the TradeBuddy you can download it absolutely for free. Just log into the FTP server of my S&R trading system at, login : journal, password : trading. You will find the EA there.

If you are interested on my work on automated trading systems and how to start your journey towards long term profitability in the forex market using expert advisors please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

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