“Trade Analyzer” is a signature AMarkets indicator that allows traders to get professional recommendations to improve their money management system in just a few clicks.
The indicator performs an in-depth analysis of the trader’s transactions for the selected period and provides valuable tips to improve trading performance.
Trade Analyzer parameters:
- Maximum true leverage for the period
- Setting Stop Loss orders for most trades
- Maximum drawdown during a specific period (in %)
- Number of trading instruments used over a given period
- Average profit to the average loss ratio
1. Maximum true leverage for the period
True leverage is the ratio of the total value of your position to your trading capital, i.e., the amount of money deposited in your trading account. When the loss on your position increases, your equity decreases, resulting in an increase in true leverage.
Let’s take an example.
If the asset price changes by 1 USD against the trader:
When trading without leverage:
5 (contracts) x 1 (USD) = 5 USD (loss). The deposit would decrease by $5 to $500 – $5 = $495.
When trading with 1:10 leverage:
50 (contracts) x 1 (USD) = 50 USD (loss). Deposit: $500 – $50 = $450.
Using leverage allows you to earn higher profits in a favorable scenario, but at the same time, it increases the risk of significant losses if the market turns against you. For example, using a 1:50 leverage ratio in the example above could either increase a trader’s capital to $750 or reduce it to $250.
To comply with the basic money management rules, we advise traders not to exceed the 1:10 leverage ratio.
2. Setting Stop Loss orders for most trades
Stop Loss is a limit order that automatically closes your trade at a specified price if the market moves against you, which allows you to limit your losses. For example, you opened a buy trade, and the price went down. If you have a stop loss order set at a predetermined level, your position will be closed when the price reaches this level, thus reducing your exposure to more risk and allowing you to minimize your losses.
If a trader doesn’t place stop-loss orders, he doesn’t manage his risks, which can have a negative effect on his trading results.
The indicator’s threshold value is set at “25% of trades without Stop Loss”, as there are traders who monitor the price action themselves and are always ready to close losing trades manually.
However, we strongly recommend placing a Stop Loss order every time you open a trade to protect your capital.
3. Maximum drawdown during a specific period (in %)
Equity is the sum of your account balance and floating (unrealized) profit/loss associated with your open positions. For example, if your account balance is $1,000, and all open positions add up to +$250 profit, then your account equity will be $1,250.
A drawdown refers to a drop in equity in a trader’s account due to a series of losing trades. If a trader’s account balance is $1,000, and the floating loss on all open positions is -$300, then the equity will be $700.
Why should you keep track of a drawdown?
The larger the drawdown, the less money remains in the trader’s account and the higher the risk of losing the entire deposit.
The indicator’s threshold drawdown value is set at 20%, which signals increased risk.
In other words, we recommend that you keep your drawdown below 20%.
4. Number of trading instruments used over a given period
Using a large number of financial instruments requires experience and trading skills. Changes in asset prices are often correlated. Therefore, inaccurate forecasting and calculations when opening a large number of trades in various instruments can significantly increase the risk of partial or complete loss of the deposit.
We do not limit traders in the number of instruments used. However, to comply with money and risk management rules, we recommend using no more than:
- 7 instruments per month;
- 12 instruments per quarter;
- 15 instruments in your trading.
5. Average profit to the average loss ratio
According to the classical money management approach, you can generate stable income by maintaining the average profit to average loss ratio at 3:1 or higher.
In other words, if the average Stop Loss order is set at 400 pips, then the average Take Profit should be at least 1200 pips away.
For effective money management, we recommend maintaining the average profit to loss ratio above 3:1.