Trading strategies
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Most traders understand EA portfolio balance through the lens of traditional risk management — controlling position sizes, diversifying currency pairs, or limiting exposure per trade.
But in automated trading, balance is about deliberately constructing a portfolio where different strategies complement each other, measuring their collective performance, and actively managing the mix based on those measurements.
The goal is to create a “book” of EAs that can help diversify performance over time, even when individual strategies hit rough patches.
A diversified mix of EAs across timeframes and assets can, in some cases, reduce reliance on any single strategy. This approach reduces dependency on any single EA’s performance, smooths your overall equity curve, and builds resilience across changing market conditions.
It’s about running the right mix, identifying gaps in your coverage, and viewing your automated trading operation as an integrated whole rather than a collection of independent systems.
Basic Evaluation Metrics – Your Start Point
Temporal (timeframe) Balancing
When combined, a timeframe balance (even on the same model and instrument) can help flatten equity swings.
For example, a losing phase in a fast-acting M15 EA can often coincide with a profitable run in an H4 trend model.
Combining this with some market regime and sessional analysis can be beneficial.
Asset Balance: Managing Systemic Correlation Risk
Running five different EAs on USDJPY might feel diversified if each uses different entry logic, even though they share the same systemic market driver.
But in an EA context, correlation measurement is not necessarily between prices, but between EA returns (equity changes) relating to specific strategies in specific market conditions.
Two EAs on the same symbol might use completely different logic and thus have near-zero correlation.
Conversely, two EAs on a different symbol may feel as though they should offer some balance, but if highly correlated in specific market conditions may not achieve your balancing aim.
In practical terms, the next step is to take this measurement and map it to potential actionable interventions.
For example, if you have a EURUSD Trend EA and a GBPUSD Breakout EA with a correlation of 0.85, they are behaving like twins in performance related to specific market circumstances. And so you may want to limit exposure to some degree if you are finding that there are many relationships like this.
However, if your gold mean reversion EA correlates 0.25 compared to the rest of your book, this may offer some balance through reducing portfolio drawdown overlap.
Directional and Sentiment Balance
Markets are commonly described as risk-on or risk-off. This bias at any particular time is very likely to impact EA performance, dependent on how well balanced you are to deal with each scenario.
You may have heard the old market cliché of “up the staircase and down the elevator shaft” to describe how prices may move in alternative directions. It does appear that optimisation for each direction, rather than EAs that trade long and short, may offer better outcomes as two separate EAs rather than one catch-all.
Market Regime and Volatility Balance
Trend and volatility states can have a profound impact on price action, whether as part of a discretionary or EA trading system. Much of this has a direct relationship to time of day, including the nature of individual sessions.
We have a market regime filter that incorporates trend and volatility factors in many EAs to account for this. This can be mapped and tested on a backtest and in a live environment to give evidence of strategy suitability for specific market conditions.
For example, mean reversion strategies may work well in the Asian session but less so in strongly trending markets and the higher volatility of the early part of the US session.
As part of balancing, you are asking questions as to whether you actually have EA strategies suited to different market regimes in place, or are you using these together to optimise book performance?
The table below summarises such an approach of regime vs market mapping:
Multi-Level Analysis: From Composition to Interaction
Once your book is structured, the challenge is to turn it into something workable. An additional layer of refinement that turns theory and measurement into something meaningful in action is where any difference will be made.
This “closing the circle” is based on evidence and a true understanding of how your EAs are behaving together. It is the step that takes you to the point where automation can begin to move to the next level.
Mapping relationships with robust and detailed performance evaluation will take time to provide evidence that these are actually making a difference in meeting balancing aims.
To really excel, you should have systems in place that allow ongoing evaluation of the approaches you are using and advise of refinements that may improve things over time.
What Next? – Implementing Balance in Practice
Theory must ultimately translate into an executable EA book. A plan of action with landmarks to show progress and maintain motivation is crucial in this approach.
Defining classification tags, setting risk weights, and building monitoring dashboards are all worth consideration.
Advanced EA traders could also consider a supervisory ‘Sentinel’ EA, or ‘mothership’ approach, to enable or disable EAs dynamically based on underlying market metrics and external information integrated into EA coding decision-making.
Final Thoughts
A balanced EA portfolio is not generated by accident; it is well-thought-out, evidence-based and a continuously developing architecture. It is designed to offer improved risk management across your EA portfolio and improved trading outcomes.
Your process begins with mapping your existing strategies by number, asset, and timeframe, then expands into analysing correlations, directional bias, and volatility regimes.
When you reach the stage where one EA’s drawdown is another’s opportunity, you are no longer simply trading models but managing a system of EA systems. To finish, ask yourself the question, “Could this approach contribute to improved outcomes over time?”. If your answer is “yes,” then your mission is clear.
If you are interested in learning more about adding EAs to your trading toolbox, join the new GO EA Programme (coming soon) by contacting [email protected].
Please find the recording of this weeks Inner Circle session below "Using Autochartist on MT4/5 to identify opportunities & create a trading system" to review at your convenience. Ilan was not only generous in giving his time to share the power of Autochartist as a trading tool but gave invaluable insights into his own trading experiences and system. Autochartist is provided FREE to all Go Markets clients with a trading balance of $500 or more and you can add it to your MT4/5 platform in your client portal. https://vimeo.com/387889058 Mike Smith Educator GO Markets Disclaimer The article ad video from GO Markets analysts is based on their independent analysis.
Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs. Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.
Here if the recording of this week's Inner Circle session to review if you managed to attend or see for the first time if you were not able to make the session live. The principles covered are applicable across all trading vehicles. (click on the icon in the corner for full screen) https://vimeo.com/383786094 Please feel free to follow up with any queries you have by dropping an email to [email protected] Mike Smith Educator and course facilitator GO Markets Disclaimer The article from GO Markets analysts is based on their independent analysis. Views expressed are of their own and of a ‘general’ nature.
Advice (if any) are not based on the reader’s personal objectives, financial situation or needs. Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.
Market sentiment towards a currency pair, and hence price, changes when new information comes into the market. The most common situation that creates such a change is the release of economic data. These are planned in terms of timing to theoretically offer no market participant an advantage over another market participant.
Economic data revised For those of you who are less experienced traders it is worth pointing out three important points: a. Some economic data releases have the potential to make a greater impact on market sentiment than others. It is beyond the scope of this article to explore this in detail, however major data points include for example GDP, jobs data, CPI (inflation measure), and interest rate decisions. b.
It is not the number per se but rather the comparison against what is expected. There is a market consensus “baked into the price” already, a projection in other words, as to what is likely to happen to major data points. So, it is the closeness or otherwise to this expected figure that is the key factor.
A big miss in either direction is likely to have a far more significant impact on market sentiment than a figure that is at, or close to, expectations. c. Also, the importance of a data point is to some degree relative to the timeframe you are trading. For example, in a shorter-term position where you position higher but are aiming for a smaller Pip move to take profit, economic data is more important, than perhaps when trading a daily chart.
As a Forex trader, you have one key fact in your favour is that the time of these announcements is entirely predictable. What this means to you is that you can make a choice and “programme” into your trading plan potential action(s) when faced with the prospect of significant imminent data release. Your trading choices Assuming you already have a defined exit general strategy in place for open positions that includes having a trailing “stop” should a trade move in your desired direction, you have THREE potential choices to make.
Accepted good general trading practice would be that you “plant your flag” in one of these as your standard. Once you have planned and implanted this, then you can prospectively test the other two, to determine which is the optimum individual “fit” for you as a trader. Your three choices are: A.
To close any open positions that are likely to be impacted by the data release to remove the risk of loss from your existing dollar result in the position. Although reducing downside risk you are also risking losing fast upside potential, should price move quickly in the direction of your trade. B.
To do nothing new i.e. adhere to your normal trail stop strategy. In this case you have retained the opportunity of upside potential whilst increasing the dollar risk associated with your wider stop (compared to the next option) being triggered. It is worth bearing in mind with this, and the subsequent choice we will discuss, there is always chance of some slippage i.e. not been filled at expected order price.
The risk of this is that it’s highest with the often-higher volatility situation following data release. C. To tighten your normal approach to trailing a stop e.g., if your norm is to trail your stop to within 20 Pips you could choose to tighten to within 10 Pips of current price pre data release as part of your system.
What this means to you is that if a trend does reverse and trigger your stop it will be at a better level, whilst still giving you any upside potential. What these all mean to you: A. Articulate within your trading plan what is your primary approach and clear any unambiguous situations where you may vary this.
B. As stated before, choose to trade the approach that you prefer right now, and then compare potential results against the other two.
Before we start, this is one of those “tell-it-how-it-is” articles, so perhaps turn your sensitivity meter down a little and read this in the nurturing, supportive spirit in which it was written. It does involve some work for those who are serious about growing as a trader, so be warned it lays down a challenge to act. The bottom line is that you may have done the ‘technical’ learning, have the optimum trading plan on the planet, but many traders do NOT get the results that may be possible due to their level of trading discipline.
If one has planned an effective exit strategy, and position sizes appropriately, accepting that some trades will go against you, rarely do the major account draw-downs happen that many, many traders sustain unless you stray from your system. More commonly, and arguably almost invariably, major draw-downs are a result of ineffective systems (and if you have not got a trading plan in place, get one!) or poor discipline in execution. The reality is that one bad trade where discipline is noticeably absent can remove weeks or even months of positive results.
But there is another “trading beast” at play here, even if one doesn’t have the major draw-down in one or two trades, there is the insidious impact of regular “smaller” discipline issues that can nibble away at your account value over a period of time. It is the latter that is the focus of this article. Why this “counting the cost” approach?
The educational aim for this article, is to stimulate some evidence gathering that may indicate that something NEEDS to change in your trading. If we look to the academic work if what motivates changes, there is a principle of interest that could be relevant. Firstly, if we look to Motivational Hedonistic theory, this suggests that people (and that includes traders) are motivated to change by either pleasure (in this context positive trading results) or avoiding pain (or negative trading results).
The reality is, as stated previously, that many traders have this insidious reduction of account value, or as an alternative “bumble along” finding themselves in a small gain following by small loss cycle and never seem to move forward. This ‘middle ground’ neither causing the two extremes of trading pleasure or pain, may result in a complacency and fail to provide the motivation to take real and meaningful action to change results. In this case, a logical approach would be to do some work that produces the evidence and jolts the trader out of this minimal action state.
This is what the following exercise aims to do or in other words, we are going to try to create some pleasure or pain to be your motivator to take any action you need to. The idea is, if we can mirror those trades that followed what we planned to do (and take pleasure from that), and removed the execution errors (and so the pain created by that evidence), then we have the platform to change positively. 3 steps to create the trading motivation to change What you need before you start Ring-fence some time (after all your trading future could depend on it!) A critical mass of your latest trades to review (we suggest a minimum of twenty) Your trading platform to historically look at charts and the honesty to record “what happened”. Your bottom-line result on our account as a benchmark of what really happened.
Step 1 – Dividing your trades. Objectively look at the trades you have taken. Make two columns, dividing these into those which you adhered to plan (“1”) and those which you did not (“2”).
Remember, exits and position sizing are the key things to include, not only those when you let a loss run but also those where you cut a potential profit short in a trade in your “2” column ( not including pre-planned profit targets). Remember also to take a loss that did adhere to plan goes in column 1. Step 2 – Analysis stage 1 – The trading pain/pleasure overview Let’s start with some simple analysis.
Total the results from each column and make a judgement of what these totals mean on where your account could have been, your execution discipline and the level of pain or pleasure you feel when you look at each column. Step 3 – “Turning the screw” – Analysis stage 2 At a deeper level we can start to look at what would have happened in those trades in column 2, ONLY if you had executed as you should. Look back at those charts specifically and dependent on what you failed to execute, record what would have happened if you had positioned sizes appropriately, had a system stop in place (or not moved your original stop when you shouldn’t have), and if you hadn’t pressed the exit button too early when you should have adhered to your trail stop strategy fully.
In recording the difference of potential versus the reality, there may be the level of pain to create that “MUST DO” feeling to take appropriate and meaningful action going forward. To summarise, often we need to “ram home” what is happening in our trading to take the action to grow as a trader and increase the likelihood of improving results. Doing the suggested practical exercise may give you the impetus to not only stick to plan, but also consequently gain the opportunity to start objectively looking at how to improve that plan to better fit you as an individual trader.
And finally One final thought, many traders come into trading with the desire to do this for a lifetime. The risk therefore of NOT addressing this, is that you not only lose a large proportion of the original capital you put into the market, but ultimately for many traders, but because there has been inaction in putting right things you need to, their pain may lead them to remove themselves from the market and destroy the potential that a lifetime of trading could create. Mike Smith Educator GO Markets Disclaimer The article from GO Markets analysts is based on their independent analysis.
Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs. Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.
At last week’s Share CFD clinic webinar session on Thursday we discussed the current market response to Coronavirus and key technical levels that could be important. Clearly market reaction has been significant, market sentiment over the last week has given a clear sentiment message as to the adverse financial implications of Coronavirus. Of course, this type of reaction to a potential global health epidemic is not unusual - there are many such similar instances and consequent reactions through history of financial markets.
Historically, in terms of how equity markets move may be worth a little more discussion. The following points are worth consideration: There will be a point whereby the market comes to the belief that any such capitulation reflects the potential damage to the economy of any such event (and hence will cease to drop). While this is happening, markets look at not only key price levels of previous support and resistance but also perceive important other “landmarks” related to price action.
Any breach of these “landmarks” will often have market participants scurrying to find the next one to see if this is also breached. At the end of such a market response any “bounce” is often rapid. So, what are these “landmarks”?
There appear to be two types that get market attention namely: The degree to which price has fallen from recent highs What the key moving averages (50 and 200 are often used) are doing both in their relation to price and each other (i.e. whether they have crossed). With the former, these key levels and subsequent definitions often cited are; Pull back – up to 10% Correction 10-20% Bear market - >20% They may be related to indices, sectors and individual stocks. So, what happened?
If we look at the US500 (CFD associated with the S&P500) on a daily chart as this is what we can access on our MetaTrader platform (see below) there are a few interesting things of note from this week. Prior to Thursday session which we discussed at the webinar, the close for the previous day (and subsequent action pre-market) had the price testing both the 10% correction level and the 200 SMA (Simple moving average) at the 3054 level. As price approaches any such key level, there are two things that are often seen in trader behaviour: Up to the breach of such a key level there may be some caution selling off more than has occurred already (including taking new short positions) Once such a breach has occurred, this often precipitates more selling which we saw during Thursday’s US equity market session, taking the price down to the next logical level of potential support.
One final point of note. Clearly any index is made up of a ‘basket’ of different stocks from different sectors. In any market downturn or upturn where it has an economic implication, the so called “cyclical” stocks respond more significantly than traditionally defensive stocks.
Hence, these sectors e.g. basic material, microchips, consumer discretionary have tended to get hit hardest which may be over 15% down from highs and some even approaching bear market territory. Does Friday’s action mean that we have seen a bottom? In another volatile session for equity markets, we saw a low at 10am US EST, and a close near the highs of the session.
The candle showed what could be interpreted as a reversal candle with higher close than open and a long wick suggestive of a market rejection of a further move downwards. Three VITAL points here of note if you are considering whether this may be a ‘bottom’ forming. Experienced traders always wait for next candle confirmation before even beginning to consider a trend reversal may be taking place.
The nature of this market move is very headline driven, hence further headlines that indicate that things are changing adversely or otherwise are likely to have a “high risk”, significant short-term impact on sentiment as markets attempt to process new information. It is not untypical that at the end of any week where there has been a significant movement, that there is Friday profit taking. After a bullish week this may be traders taking profit in long positions (see gold this week as an example), or, as it could be in this case with Friday’s action, those who are short the equity markets closing down those positions for profit (hence pushing the price higher).
Clearly, the market will continue to give us messages but the main ones in terms of your trading (which we hope this article may have helped with) are: Having some understanding of what and how market sentiment may help your decision making There is no doubt that this is a higher than usual “risk environment”, irrespective of trading direction chosen or what instruments you are trading. Logically therefore, it is worth considering alterations in position sizing or even having a larger than usual amount of your trading capital (as much of the market now does), sitting on the sidelines. We will be discussing these issues further in this week’s webinar sessions ( including tonight’s Inner Circle ) which we would be delighted if you could attend, if you are not already part of this weekly education group you can join us at 7.30pm AEDT this evening HERE Send any comments or questions to [email protected] Trade safe Mike Smith Educator GO Markets Disclaimer The article from GO Markets analysts is based on their independent analysis.
Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs. Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.
Trading requires a commitment of time. For each of us the amount of time we must dedicate to trading activities is limited and justifiably so by other life activities (for of course, we want trading to contribute rather than take away from lifestyle). Despite the importance of checking in on how you are using your trading time, commonly traders do not manage their time for their trading.
If you view your trading as like any other enterprise you are involved in, some would consider this vital part of your “Trading Business” in not only optimising effectiveness, but also in maintaining an appropriate life/trading balance. When doing this there are potentially three key questions you need answered: 1. What am I spending time on now with trading related activities? 2.
How much time should I spend with specific trading activities? 3. What do I do with this time to ensure it is effective and efficient? The first stage in this assessment is to audit this so you can plan to adjust what you are doing and the time you are spending on it to achieve the aim of improving your trading time management.
To this end we have attached such an audit tool to this article to help you get started (click on the download link below). We trust it may be useful in your efforts to treat your trading as you would a business. Download: time-management-tool Mike Smith Educator GO Markets Disclaimer The article from GO Markets analysts is based on their independent analysis.
Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs. Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.