Risk Management

Risk management is an essential but often overlooked prerequisite to profitable trading. Never forget that trading is a risky business. A trader who has generated substantial profits over months can lose it all in just one or two bad trades if they don’t use proper risk management.

Risk management plays a big part in the life of a trader and an even larger part of winning traders. A trader can make 90% winning trades, but if the 10% of losing trades are mishandled, they can lose money overall.

As Chinese general Sun Tzu’s once said: “Every battle is won before it is fought.” The phrase implies that planning and strategy – not battles – win wars. Similarly, successful traders commonly quote the phrase: “Plan the trade and trade the plan.” Just like in war, planning ahead can often mean the difference between success and failure. The problem is for most traders planning a trade is hard, and sticking to it can be even harder.

Planning a trade and trading that plan is where EnigmaSignal can be a step change for traders. EnigmaSignal Quant Trader is constantly planning trades, often thousands of times per second. EnigmaSiganl looks at potential trade entry points, trade profit targets and stop levels continuously. It can do this many times faster than a human and more accurately. Humans can’t compete with the speed and power of an intelligent algorithm. It’s why hedge funds and banks use algorithm-based stops and targets, not simple things like Average True Range or a moving average.

Stop-loss (S/L) and take-profit (T/P) points are two key ways in which traders can plan ahead when trading. Successful traders know what price they are willing to pay and at what price they are willing to sell. They then measure the resulting returns against the probability of the trade hitting those goals. If the return is high enough, then they execute the trade. Sound complex? Well, it can be. For a human to do this is time-consuming and prone to error. EnigmaSignal calculates stop-loss and take-profit points every second of a trade and adjusts them both as the trade runs.

Unsuccessful traders often enter a trade without having any idea of the points at which they will sell at a profit or a loss. Or they enter with a random target such as “100 pips stop loss and 125 pips limit order”. That’s not a planned trade. It’s flipping a coin. Like gamblers on a lucky or unlucky streak, emotions begin to take over and dictate trades. Losses often make people hold on and hope to make their money back, while profits often make traders greedy and hold on for even more gains. EnigmaSignal removes emotion by ensuring the trader knows exactly what is going on, and that the position is being actively monitored.

By constantly looking at the market for reasons to enter a trade, take a profit or move a stop loss, EnigmaSignal aims to deliver emotion free trading. The trader remains completely in control of the trade but feels empowered by the vast computational mathematics that is either helping them run the trade or running the trade for them. Wether you run EnigmaSignal in manual mode or automated mode, you know the math is there to manage risk.