Adjusting Parameters For 2013

forex trading

Let’s start with the lessons learned in 2012.

Dr. Tumbili knows he was lucky trading forex in 2012, meaning:

Just imagine if the 400 pips drawdown had happened in January and February. The recovery would have been a long and psychologically draining experience. It would’ve been a very profitable 2012, all right… but at higher adrenaline levels, for certain.

We decided, wisely, to reduce risk exposure for 2013… remember?

But… reduce to which level?

Dr. Tumbili and I made some very cool simulations, changing the combinations of key parameters like:

  • Average Stop Losses;
  • Take Profit Levels;
  • Weekly Target Levels;
  • Risk Exposures (of course);
  • Etc.

We came to a great conclusion: the majority of those parameters ended up being correct, reconfirming the consistency of the Model T Trading System.

We then decided the best thing to do – at least until proven wrong – was to maintain all the 2012 parameters as they were, only reducing the Risk Exposure.

Simple. Clean. Easy.

But, again… to which level?

We were determined to keep Maximum Drawdown below 20% and Maximum Weekly Loss below 7.5%.

In order to achieve that, simulations indicated a new Risk Exposure level of 1.35% per trade.

There was something significant we had to consider analyzing the numbers: volatility started to rise dramatically in the last months of 2012.

  • Facing the high possibility that volatility would not resume normal behavior, we decided to play it a little safer: 1.25% per trade.

Let’s take a look at the final 2012 Model T Simulation numbers…

 

Simulation For 2012
Model T Forex Trading  System - Simulation For 2012

Model T Forex Trading System – Simulation For 2012

 

What Do These Numbers Tell Us?

The numbers on the table above show a simulation of what would have been 2012 “if we had adopted a 1.25% Risk Exposure (instead of 2%), starting Jan’02, 2012″:

  • By changing the Risk Exposure from 2% per trade to 1.25% per trade, we’d have sacrificed profits, all right, from 170.2% to simulated 91.9%;
  • But we’d have also reduced the Maximum Drawdown from 27.9% to a simulated 18.3%, below the 20% imposed as our limit;
  • And the Weekly Maximum Loss would’ve been reduced from a 10.1% per week to a simulated 6.4%, also to a level below the 7.5% imposed as our limit, with some margin to spare.

We believe that a 90% profit level still indicates a very healthy forex trading system.

Therefore, 2013 parameters were set in accordance with the above simulation:

  1. Risk Exposure was reduced to 1.25% per trade;
  2. All other parameters have been kept in place, as per 2012.

Dr. Tumbili should do fairly well in 2013.

 

Conclusion

This is just a simulation, of course, based on 2012 reality. Absolutely nobody – and nothing – suggests that those numbers can be replicated in 2013, or even come close to them.

Markets change, and sometimes they change dramatically.

What could go wrong, though?

The key right now is “volatility”.

If it stays this high (or higher), it might stop many of Dr. Tumbili’s trades, before they even have a chance to develop as winners. Remember, he has to let the winners run… but high volatility is the natural enemy of winning trades.

A reasonable solution would be to keep an eye on the Stop Loss levels:

  • Under high volatility conditions, we might have to enlarge those levels;
  • In order to keep the same Risk Exposure, though, he’ll have to reduce Contract Sizes;
  • Which will reduce profits, as a consequence.

Delicate balance…

We’ll keep an eye on all this in 2013. Unfortunately we’re not in 2007 anymore, when forex trading was pretty much a breeze in comparison!

Still fun, though!

Thanks for watching…

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See you at the next page: Model T System In 2013.