Collective2

Methodology

This EA produces Monte Carlo simulations of the Forex market every minute for a number of periods into the future. A mean and standard deviation are obtained from this projection, and are fed into a trade decision subroutine. This information is then used to enter the market when conditions are favorable and exit when conditions turn for the worse.

Take-Profit (TP) and Stop-Loss (SL) levels are set dynamically based on the projected means and standard deviation upon execution and the desired risk level. See discussion on Risk.

This adaptation of the MCFX system uses only a single position per traded pair. This is done to make its use feasible in small accounts. It should be noted, however, that risk management for this arbitrage strategy tends to work better with multiple positions and a larger account. See http://mcfx.collective2.com for the multi-position version.

Risk Management

The TP and SL are set using Monte Carlo standard deviation data when an entry is executed. The lot size is calculated such that 3% of the account will be lost if the SL is hit. This risk is divided by however many instruments are being traded. For example, if we're trading the USDCAD and GBPUSD, each will have a position size that risks 1.5% of the principal in the account, such that if positions are entered in both pairs simultaneously, 3% of the account will be at risk.

Please note that this percentage is approximate since C2 does not allow fractional lots. In addition, even though the maximum risk per transaction is 3%, it is possible to have a number of losing transactions in a row, and the user may lose more than 3% within any given period.

if you have a $5,000 account and would like to trade with a 3% risk, your scaling factor will be 1. Otherwise, please calculate your scaling factor as follow:

sf = AB / rAB * R / rR

where:
sf = scaling factor
AB = account balance (yours)
rAB = reference account balance (mine)
R = desired risk (yours)
rR = reference risk (3%)