How to trade The Widow Maker News – Trading Systems – 27 July 2023

News like FOMC or NFP are known by the name “The Widow Maker”. This exaggeration definetely shows the explosive character of the events.

If you have open positions without a strict Stop Loss, you will likely run into a higher drawdown. And since most EAs and traders like high lot positions, the drawdowns may mutate to margin calls within only a few minutes. That is why most EAs try to apply news-filter. They try to run away from these events and hope, that no unplanned news will blow them up. They really should do so. And why? Because they do not use strict Stop Loss.

Here, I took some random, one of the most wanted EAs, and compared its drawdown with the price of Gold. We can see that the EA does not use strict Stop Loss. This forces it to high drawdowns during strong price movements in general. Not just news. I personally, don’t want to be in such a situation with my accounts.

Stop Loss is a Tool for Rookies?

When you open up one of the books for beginners about Forex trading, the first advises is probably to use a Stop Loss. So many trading Gurus say to use a Stop Loss. TikTok is telling us to use Stop Loss! So why nearly none of the EAs is using it?

In my opinion, there is a rigid link between the winning odds and the risk/reward. The higher the probability of a winning trade, the worse is the TP/SL ratio. For example, if we wait for ever until our profit target is hit, we might walk thorugh a high drawdown making our TP/SL ratio very small.

On YouTube there are many gurus presenting videos of awesome entry strategies with high TP/SL ratio. But nearly none of them is presenting the winning odds – thus an EA will try to reach high profits, but will likely hit the SL most of the time and loose money after all.

You would probably say: I would trade all of them. That’s exactly what AI for Gold does. If the price does not move in our direction, it closes the trade and waits for the next pattern. The only trick it uses is time: It trades only a few times a week and this is the reason why it can maintain high winning odds by sampling over different market conditions.

In one of the next blog articles I will highlight some design ideas behind AI for Gold. Until then,

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