The Matchmaking AI Development Story Episode 3 — Why we removed stop-loss (the most risky choice)
Last time, I talked about buying a late-blooming flower andwaiting for mean reversion (catching up with peers)to recover. This time, I will write about the next,the most dangerous choiceafter that. This EAdoes not cut losses. Why was it designed that way? And what will protect it instead? I will write from the dangerous part before the good parts.
The core of this method isto wait for the spread to narrow and return. But in the meantime you carry a floating loss. What happens if you cut losses now?You often cut just before the rebound, missing the recovery you could have captured with your own hands.
As I tested more, this tendency became clearer. If you stop new positions during a crisis or halt additional purchases during a recovery,the recovery becomes even more distant. A mean-reversion approach does not fit with conventional cut-loss strategies. Therefore I chose not to have stop losses. Not to take the easy way out, but to stay truthful to the method.
Not having a stop loss means there is no cap on floating losses. The greatest weakness is“the broad yen strength”. When USDJPY, GBPJPY, and EURJPY all drop together, the late bloomers sink as well, and mean reversion becomes hard to achieve.
Floating losses keep growing,and if a rapid, one-sided yen appreciation continues beyond expectations, the account may collapse. This is a structural weakness of the design and cannot be eliminated. “No stop loss = safety” is not true.
That’s why this EAmust use ample capital. And, instead of a stop loss, we provide an alternative “defense.”
※Illustrative image. In some cases the recovery occurs, in others floating losses continue to expand without returning.
To compensate for removing stop losses, the defense focuses on “entry” and “capital.”
- ①Stop new buys / waitWhen volatility spikes, or spreads widen abnormally, or margin drops, the AI stops new entries. A risk-averse, patient decision to prevent widening the wound.
- ②Keep more capitalMaintain ample free capital to withstand expected deep floating losses.0.01 lots × 3 instruments, about 1.6 million yenis the guideline.
- ③Manage interval and number of add-onsDon’t blindly increase. Add in measured steps at set price intervals with limits. Plan the orders to wait for recovery.
The main guardians are not stop losses but the “decision to stop” and “sufficient capital.” To keep the aggressive approach (mean-reversion) unchanged, the defense’s placement shifted.stop decision and sufficient capital. This is about protecting while not changing the offensive approach.
For reference, these are numbers from testing (about 11 years of real data). This isonly the current development version’s performance and not a guarantee of final form or future promises.
This isa snapshot at development time. The logic will continue to be refined to improve. I don’t expect numbers to be fixed. Good numbers and painful numbers (floating losses) will be listed as they are, in this stage.
The period of bearing floating losses in this EA is called “Chilling bloom. If you endure the cold and wait, it will bloom again. The serial title “Even if it withers, it will bloom again” comes from this trust in mean reversion.
But cherry blossoms can wither. If you operate with unrealistic funds, branches may break before blooming. Therefore, because this is a method that believes in “bloom again,”fund management that prevents witheringis the most vital lifeline.
Removing stop losses was to stay faithful to the mean-reversion approach. In exchange, I disclose all risks up front.Weak to a broad yen uptrend, worst case could be bankruptcy. So protect with ample capital and a stopping decision.— This is the essence of the most dangerous choice.
Next time, about the AI that enforces that “stop decision.”What to entrust to AI and what to withhold. I will discuss where authority ends.
※This article is for information provision and not investment solicitation. The performance results shown are past performance and do not guarantee future profits. FX/CFD trading involves risk. Please make investment decisions at your own responsibility.