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It's all about Money Management. You probably have heard this dozens of times, some of you may even have implemented some kind of Lot management in their EA or trading strategies and believe that it will do, alone as it is.

It is assumed that testing results with the fixed 0.1 lot better reflect all advantages and disadvantages of a strategy. Arguments for this assumption are quite clear: for most of currency pairs this graph shows how many points a strategy makes within a testing period. There is a justified opinion that a strategy may be considered challenging if it is profitable by points; but if a mathematical expectation is negative, such a strategy can hardly become profitable only by means of money management.

One more convincing argument: a curve of "0.1 lot" close to a straight line is a kind of indication of a strategy stability which can hardly be seen on an exponential graph.

Al Parsai develops solutions for users of MetaTrader 4 and teaches how to develop Expert Advisors and other MQL4 programs. He is going to participate in the Automated Trading Championship 2007. Al is preparing his special EA for this now. He takes his independent stand on money management - I would say while Money Management is a very important element, a complete EA is the one that consists of a successful strategy, risk management, and money management.

Drazen Ziskovic from Croatia uses an Expert Advisor based on two main principles. The first principle is time. The second principle considers patterns, price volatility and many other things. Drazen uses a non-standard money-management method. "My lot size calculation is simple, based on leverage – AccountBalance()*Leverage/100K".

Let us be just towards them: These people do what they can do, most of them have a long trading experience and much knowledge we can envy. However, let us call things by their proper names: practically all of them are often mistaken. They can look big, enjoy more or less popularity, sometimes make a handsome fortune ("gurus" of different kinds are really well described in the Alexander Elder's book titled Trading for a Living: Psychology, Trading Tactics, Money Management), but the fact remains that even experienced analysts are often mistaken.

So, considering these circumstances, what are the chances of a first-time programmer who is just making his or her first steps in trading on Forex? Let us try to retrace the pathway that the beginner goes in his or her quest of the "Grail".

Andrei Moraru is a programmer from Ukraine. He is not so long ago in the Forex market, but already develops his own trading strategies. He thinks that the success of an Expert Advisor is quite easy – a competent money-management strategy and stable forecasting of successful entry and exit points.

Hello, Andrei. Please tell us about your experience in trading.

Automated Trading Championship 2006 helped to see problems Expert Advisors' developers face regularly, to understand what mistakes they make, what they omit when developing Expert Advisors. We saw giddy ups and disastrous failures in the last-year contest. Expert Advisors burst into the Top Ten like the wind and left the first page as quickly in order never to appear on it again. The most shining example is, of course, Sashken's Expert Advisor. He gained huge profits due to an error in the code and stopped only by Margin Call. There were such Participants whose profitable strategies also traded 0.1 or 1.0 lot due to some sad mistakes. They all did not take prize places nor they shared prize money. This privilege was got by those whose Expert Advisors contained fewer errors and had positive expected payoff.

In his book, The Mathematics of Money Management, Ralph Vince uses the notion of HPR (holding period returns). A trade resulted in profit of 10% has the HPR=1+0.10=1.10. A trade resulted in a loss of 10% has the HPR=1-0. 10=0.90. You can also obtain the value of HPR for a trade by dividing the balance value after the trade has been closed (BalanceClose) by the balance value at opening of the trade (BalanceOpen). HPR=BalanceClose/BalanceOpen. Thus, every trade has both a result in money terms and a result expressed as HPR. This will allow us to compare systems independently on the size of traded contracts. One of indexes used in such comparison is the arithmetic average, AHPR (average holding period returns).

Holding Period Returns (HPR) In his book, The Mathematics of Money Management, Ralph Vince uses the notion of HPR (holding period returns). A trade resulted in profit of 10% has the HPR=1+0.10=1.10. A trade resulted in a loss of 10% has the HPR=1-0. 10=0.90. You can also obtain the value of HPR for a trade by dividing the balance value after the trade has been closed (BalanceClose) by the balance value at opening of the trade (BalanceOpen). HPR=BalanceClose/BalanceOpen. Thus, every trade has both a result in money terms and a result expressed as HPR. This will allow us to compare systems independently on the size of traded contracts. One of indexes used in such comparison is the arithmetic average, AHPR (average holding period returns).

Good. I see risk management and money management as two separate different entities also.

Risk management is about assessing your risk, how much you want to lose to gain a certain profit.