Risk management represents the core of our trading strategy. It is basically around 70% of the trading strategy we use on a daily basis.
Investment Capital Advisors LLC has developed a unique software program, which contains some tools and calculators to help us in testing and implementing sophisticated risk management models.
Below are some of our risk management rules:
Maximum risk is 1.5% per trade.
One of our principles is to "Never let a loss at any particular trade exceed more than 1.5% from the total account". However, please be aware that there are rare situations where this percentage can be increased or decreased.
Maximum risk in the open position is 4.5%.
Total of the stop losses of the open positions should never exceed than 4.5% of the total account.
However, please be aware that there are rare situations where this percentage can be increased or decreased.
Maximum risk in the same currency behavior or type is 4.5%
We cannot risk 2% on EUR/USD and simultaneously risk 3% on GBP/USD, as EUR/USD and GBP/USD has the same characteristics and for most of the time, they move in the same direction. The total risk of these two trades would be 5%; this is not an acceptable amount since it exceeds our level of 4.5%.
Maximum risk per day is 4.5%
Maximum risk per day should never exceed than 4.5%.
The account should never lose more than 4.5% of its current value at any given day.
Therefore, we will never have more than 3 trades opened at any given time.
Maximum Drawdown 15%
Maximum draw-down (Peak-to-valley) should never exceed 15%.
Investors determine the maximum drawdown they are willing to take.
At the beginning of each month, we determine the equity of the account as the starting balance. During the month the equity will never goes below 15% the starting balance.
Reward/Risk ratio never less than 1.5
While risk is defined as the amount a trader is risking per trade, reward is, on the other side defined as the amount a trader expects to make.
That said, we only execute trades where the potential profit is expected to be at least 1.5 times the risk taken.
For instance, if we are risking 1% on a particular trade; we are not going to execute the trade, unless we have minimum 1.5% potential profit on it.
Maximum Leverage per position X4
Maximum Leverage per position (“leveraged invested amount” divided by “account value”) should never be over than 4.
However this number can be increased or decreased.
Maximum leverage of all positions opened simultaneously X10
Maximum leverage of all positions opened simultaneously (“Sum of all leveraged invested amounts” divided by “account value”) should never be over than 16.
However, please be aware that there are rare situations where this percentage can be increased or decreased.
Monthly profit is compounded
Net profit made monthly, will be considered an addition to principal, and will be compounded automatically.
Compounding is the process of reinvesting the previous profits to generate more profits. For example suppose a 6% profit is made monthly, by keeping the position size constant for consecutive 12 months, we will achieve a profit of 72% of initial investing capital, But if we are compounding, after these 12 months, we will achieve 101% at the end of the year.
