Day 22: Concrete examples of risk management rules in EA operations

Last time (DAY 21), we organized the points and conceptual examples for identifying a high-quality EA.
Today (DAY 22), we will delve further into therisk management ruleswhen actually operating an EA.
No matter how excellent the EA's logic is, markets are always changing, and hardware malfunctions can occur.
To minimize such risks and keep operation safe, what rules should be set?

1. Pause or adjust settings if drawdown exceeds a certain line

• Importance of drawdown (DD) monitoring
  In EA operations, how much loss can be contained determines long-term stability.
  Each trader has a different acceptable DD level, but for example, it is good to quantify rules such as **“5–10% DD is within expected range; if DD exceeds 10%, pause temporarily and return to verification.”**

• Concrete examples of setting changes

  • Lot adjustment: If the DD line is exceeded, reduce the lot size to lower risk.

  • Fine-tuning parameters: The market may be changing, and the EA may be entering phases it struggles with, so recheck the logic with backtests and forward tests and review the settings.

2. Aggregated risk when running multiple EAs/multiple logics

• Set a limit on simultaneous entries
  When using multiple EAs together, it’s possible for positions to be opened simultaneously without awareness, imposing greater-than-expected risk.
  Rules such as **“total concurrent positions capped at ○件”** and **“stop new entries if margin usage exceeds ○%”** provide security.

• Consider currency pair correlations
  If positions cluster on the same dollar cross, there is a higher risk of simultaneous losses due to dollar-related news.
  As discussed previously, include strategies combining low-correlation pairs or logics, and manage capital allocation and entry limits.

3. Reevaluate the system after a certain period of consecutive losses or drawdowns

• Forced stop after a certain number of consecutive losses
  Some EAs have logics that tend to win or lose in streaks, but when consecutive losses exceed expectations, should we question whether the market environment no longer fits the logic?
  Using the number of consecutive losses as a trigger to pause and recheck operation status is considered a wise decision.

• Weekly/monthly loss limit
  A rule such as stopping if losses in a week or month exceed a certain percentage of funds is effective. Even if an EA is optimized, rapid market changes can lead to unexpected losses.
  Stopping at a pre-set line, cooling down, and rechecking helps prevent major damage.

4. Preparedness for VPS failure and network troubles

• Prepare a backup environment
  Even if you use a VPS, having a secondary VPS contract or a home PC with MT4/MT5 installed can speed up recovery in case of failure.

• Position management on EA restart
  When restarting after a crash, how to manage held positions can be problematic. Some EAs may not recognize position information correctly after restart.
  Ensuring that your logic design minimizes such problems provides reassurance.

5. Automatic lot adjustment and margin level monitoring

• Adjust lots according to account equity changes
  If the EA includes an automatic lot feature, it can automatically adjust so that lots rise with increasing equity and fall with decreasing equity.
  This is an effective method to enforce money management, but rapid equity changes can widen the volatility, so tuning is needed to avoid excessive risk.

• Monitoring margin level

  • Rapid exchange rate swings can lower the margin level and increase risk of a margin call.

  • Automations and monitoring systems such as **“stop new orders when margin level falls below ○%”** or **“force-close positions when it falls below △%”** help keep it safe.

6. Regular maintenance and resetting goals

• Review profits and losses on weekends or month-ends and plan for the next week or month
  Even EAs require periodic verification and updates in response to market changes.
  For example, “last month the range was long, so profits with this EA did not grow; try another logic or currency pair,” and so on,PDCA cycleis important to implement.

• Re-setting goals and acceptable risk
  If initial capital goals or market views change, reconsider risk management rules such as lot settings and acceptable DD lines.
  If trading policy and risk management rules diverge, psychological stress will increase.

Today’s summary and next time preview

• Risk management rules are essential in EA operation. Establish clear numeric criteria such as **“stop if drawdown exceeds ○%”** and **“pause after ○ consecutive losses”** to help prevent emotional decisions.

• Also prepare for VPS troubles and network outages by setting up backup environmentsto address operational infrastructure risksas well.

• Regularly review and maintain, updating rules to match market conditions and your own trading approach.

Next time (DAY 23) will cover the theme of “Understanding the EA creation process—grasping the concept of logic design,” providing a rough picture of how an EA is designed and programmed. Even if you do not program yourself, understanding roughly how it operates may change how you perceive EA operation.

Introduction to EAs I sell

When operating an EA, whether you can set such risk management rules properly determines success or failure.
If you’re unsure about choosing an EA, please also take a look at the EAs I sell.
https://www.gogojungle.co.jp/users/147322/products

Imagine combining these with your operating rules to aim for stable trading.

In the next article, learn how EAs are created and the process involved.
Be sure to click “Read more” to deepen your understanding.