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This money management script defines a "Ratio Cash" variable that is used to set the percentage of capital to invest in equities. The rest of the capital remains in cash.
If "Ratio Cash" is equal to 20 then 80% (100-20) will be invested into equities (at least available for buying/shorting securities).
The portfolio is rebalanced when the portfolio increase I% or decrease D% since the last rebalance date.
The variables "I" and "D" corresponds to the "Rebalance UpperBand" and "Rebalance LowerBand" fields in your money management script.
By rebalance, we mean scaling in/out positions so that 20% of capital remains cash (Given the above example). During the rebalance, positions are also scaled so that each position gets the same size.
On each rebalance, you can also update the "Ratio Cash" variable using the "Equity/Cash Step".
Let us say that each time the equity return reaches the upperband, you want to decrease the ratio cash by 10%. In this case, you just need to set "-10" as value in the "Equity/Cash Step" field.
If the equity returns reaches the lowerband then the ratio cash will increase by 10% and so on until it reaches the "Max Ratio Cash" value.
Script uploaded by Felipe Tudela.
Author of two books:
1. "Trading Triads, Unlocking the Secret of Market Structure and Trading in any Market", Wiley, 2010
2. "The Secret Code of Japanese Candlesticks", Wiley, 2008.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
