the Ultima EA has been experiencing a draw-down since the beginning of June. This is especially hard on the trading psychology of the investor.
However, this is certainly not the first draw-down that Ultima EA has survived. In fact, we can see that Ultima managed to deal with similar situations in the past in both back-testing and live trading.
This article explains our 7 tips on how to handle draw-downs when trading Ultima EA with 5% risk per setup (which is known for its high risk approach and its potential for aggressive account building). Also, Mislav Nikolic, the Ultima EA creator, explains why being prepared for draw-downs is key.
Draw-downs are a natural part of trading because traders open and close positions relatively quickly. Trading is different than investing because investors can hold on to assets for a very long time and wait for the asset to become profitable.
Trading with leverage like with Forex and CFDs requires more precise timing of entries and exits. Traders do not have the luxury of time and hope like investors do. The benefit for leveraged trades is that they can pull out more profits in a shorter period of time, but this does entail more risk.
Due to leverage, traders are opening and closing multiple positions in a relatively short period of time with profits and losses. This in turn creates the possibility for both winning and losing streaks. The losses accumulate to what is known as a draw-down.
The “heaviness” of a draw-down from a trading psychology point of view depends on a couple of factors, at the very least:
Many traders, including ourselves, trade the Ultima EA with 5% risk per setup, which is the maximum risk allowed because higher risk creates too large of a draw-down. Even with 5% risk per setup, the draw-down in back-testing and live trading is around 50-55% of the trading capital.
Mislav Nikolic, the Ultima EA creator, explained it as follows: “The Ultima EA does a handsome job of protecting the capital when the market is ranging and earning excellent profits when the market is trending. The EA usually has a small losing streak, which is why we are even able to trade it with such a high risk approach as 5% risk per setup. But at times, this will create draw-downs and traders need to be prepared for it, otherwise they will give up and miss the next push up.”
On the flipside, the 5% risk per setup also allows the account to grow strongly, which is the main purpose of the Ultima EA: aggressive account growth. Back-testing and live trading show how the EA can gain hundreds of percent per year. This is only possible by risking high and expecting draw-downs and slow months to occur at times.
Here are 7 tips to handle draw-downs:
Traders would probably need to trade with 1% risk or less per setup if they wanted to avoid the worst kind of draw-downs over the past 5 years. But in turn, this lower risk is accompanied with lower profit potential.
The draw-down with 5% risk per setup has certainly happened before in both live trading and back-testing. Let’s review them.
Will the Ultima EA recover from the draw-down like it did with previous examples? Maybe yes, maybe not. We cannot forecast if and when any recovery will take place. Any EA trading Forex and CFD with leverage is a high risk approach. The risk when trading with 5% risk per setup is even more high risk. That said, the profit potential for growing the account in the long run is enormous. Whether the profit occurs in 2020 or perhaps in 2021, we do think that the odds are on our side.
Mislav Nikolic – Ultima EA creator
Chris Svorcik – Elite CurrenSea