Is drawdown the amount of money you actually lose in a a trade, or is it the amount of money you are willing to allow a trade to go against you in a bad trade before you set a stop loss? Exactly what is drawdown and how does it factor into my money management plan. This is important to me as I know that money management is probably the main difference betwqeen a successful trader and someone who just keeps renewing their demo account, lol. Thanks for any tips.
Draw down from my perspective is the maximum amount of money your account has lost. Like say you went from 10,000 to 8,000 then to 15,000 then back to 10,000. Your draw down would be 5,000. Personally I am not going to allow more then a 10% draw down. Thus my trading system can not take 10 hits in a row.
I recomend you to take a time and read babypips school 13th Grade Money Management.I think that you will find your answer there.
Swordofrue sad somthing that pop some toughts in my mind. He sad : Personally I am not going to allow more then a 10% draw down. Thus my trading system can not take 10 hits in a row.
But what if that happend if you get 10 bad trades in a roll ? (never wish you that but never say never )
What happend when trader rich his drawdown limit ?
Hmmm what i probably will do is :
1st Make a revison of my trading system.
case 1 If i find somthing wrong in it eventualy try to change it.
case 2 If i find every thing is fine and it work for quite some time before.
2nd I will decrease % of risk per trade if i trade with 1 % per trade will drop to .25 % or .5%
this will give me quite some room for trading and improve my system.
But in that way of thinking drawdown limit - is some kind of stop loss for your capital so if you have 10,000 bucks capital that you put in Forex acount and your drawdown limit is 10% that mean you basicaly trade with 1000 bucks (cause if you rich your limit of 10% you will stop to trade). So you put 1 % of 10,000 capital or 100 bucks per trade but this 100 bucks are 10 % of your limit of 1000 bucks (wich you set that you will stop) so apear that you trade with 10 % risk per trade.So that what i start thinking is shouldn’t we acord %risk to money that we are ready to lose insted of acord to money that we put at table ? Will be glad to see more opinions.