I was doing well until all of a sudden I blew my account today: I don’t know how to interpret drawdown I guess
And here’s my balance before and after the last 4 losing positions were closed:
I think I’m on the right track, but I can’t continue if I don’t know which one of those terms above is the most important one, and how to interpret them.
You can also point me to an article that explains them all.
Hi @new.trader, if you just present us this information, it will be hard to answer.
All of them are important, but you have to describe your strategy then we can tell you the priorities to look for.
Balance is amount of fund in your trading account.
Equity is amount of outstanding fund for trading. If broker gives you trading credit, the equity will be your balance + credit. When you open position, equity will be added base on your floating (plus / minus).
Margin is total of fund is used to open your position. Not floating.
Free Margin is total of fund available to cover your position.
Margin Level is percentage your equity to used margin. It will be the indicator for broker to warn you for Margin Call then later Stopped Out.
Drawdown is maximum negative floating.
Max Drawdown is record of max negative floating in your account.
Deposit Load, amount of your used margin to equity. Bigger volume in your positions will result greater deposit load.
If you want to open position, you have to monitor your drawdown when you are using averaging. When you are a single shooter, you will care more to deposit load.
When you are trading aggressively, margin level need to be watched.
Money management will have to rely on margin, drawdown, deposit load.
when you open position, make sure your equity is enough.
Can you see? Different method will look at them differently.
Wow, thank you TYGMedia for answering my questions.
Based on what you see in those two screenshots I shared, do you think I’m generally on the right track? (except obviously for those last 4 trades that blew the account)?
Hi @new.trader, you are welcome. Having a positive response will make my day
However, don’t be disheartened, when I look at your Drawdown (DD) vs Profit Growth, I make an assumption that you were trading without SL. Your strategy is waiting profit and close them all. You may open multiple positions. (I may be wrong)
Reason:
Your chart has no losses.
Your DD quite big 35% in average and finally 76%
Your profit isn’t consistent enough, but you have sufficient trading psychology (by looking at your drawdown), but you need to apply risk and money management properly.
You are more and less have to practice more, in particular your risk and money management. You probably have to learn how to determine trend properly. I can say this, because I saw this typical performance within fellow traders who kept their position, wishing market would be turned in their favour. This thought mostly comes because they are not sure with market trend, let them let keep their positions.
Again, I can be wrong. It’s just merely my opinion You need to implement good risk and money management. Just imagine, when you trade with 20k USD, not 100 USD. You need to develop a stable and precision skill to survive in this field
Thank you very much TYGMedia. Your response is right on the money. I need to practice better money management.
For example with a $100 account, having a few open trades that in total are losing around $30, means I’m risking 30% of my total account among say 4 currently open trades, which means 7.5% per trade, which can be way too large depending of course on one’s trading and money management strategies.
May I ask another question?
When you grow your account from $100 to say $200 or $300, are the brokers going to calculate all those terms I asked about (Margin, Free Margin, Margin Level, Drawdown, Max. Drawdown) using the new balance of your account, or do they use the initial $100 as the base for everything. I know it’s such a noob question, and I already (probably) know that the answer is: everything will be calculated based on the current balance regardless of how small or large the initial balance was. I’m just asking to make sure.
Hi @new.trader, you may ask many questions. This is what babypips is created for.
You are correct, everything will be based on Equity. But to be safe, look only your Balance. Balance is your real money. If you deposit 100 USD, then you make 1 million, you can use all 1 million to open, as long as the broker is real. Make sure you are using a good broker, at least they are regulated by good regulator.
Thank you for all the answers. I’ll make sure to ask my questions from you whenever I happen to have one. Thank you again TYGMedia. I appreciate it so much.
Hello again TYGMedia, I’m wondering how you knew I had “sufficient trading psychology”. You said “by looking at your drawdown”. But what did my drawdown reveal? How did you interpret it? Please enlighten me. Thank you again.
Hi @new.trader, Your trading pattern is showing a trader without or little or ignoring fear. It can be meant you have no fear or good control of it .
Your win rate is not good (DD bigger than profit), means you have no good money and risk management.
Having very high DD mostly indicate a beginner, risk taker or gambling strategy. So, I assumed that your psychology is sufficient to perform such, but if you are keep hitting big SL, your psychology will be effected one day. So implementing proper Risk and Money Management is critical. Your calmness won’t last long, unless you know what you do.
For example, I have a strategy to trade with 2k USD. In a week, I can earn at least 80%. The peak is 300% / week. During Covid, I made almost 600% within a week. But there is time, I will get stopped out (SO), balance turns to 0, I had ever been SO 3 times in a row within a month (lost 6k++).
Since I know what I’m doing, I have no problem with the loss, it’s within my risk and money management.
In MT5, key terms include balance, which is the total funds excluding open trades, and equity, which is the balance plus unrealized profits or losses. Margin refers to the funds set aside for open positions, while free margin represents the available funds for new trades. Margin level is the percentage of equity to margin, and drawdown measures the peak-to-trough decline in equity. Understanding drawdown and margin level is crucial for effective risk management. For detailed explanations, resources like BabyPips can be helpful.
When you say my win rate is not good, is it because of those last 4 losing trades? What if those last 4 trades did not happen? In other words, imagine I shared those two screenshots BEFORE those last 4 losing trades. Would my win rate still be bad?
Thank you brainchild2. Your explanation is also great. So let me see if I understand these correctly:
• Balance: Your total funds excluding open trades. • Equity: Your balance + the current state of your open trades. • Margin: The amount of funds already engaged in your open positions. • Free Margin: Available funds that can be used to open new trades. • Margin Level: Percentage of Equity to Margin. • Drawdown: Measures the peak-to-trough decline in Equity.
About Margin Level and Drawdown:
Please give an example of Margin Level calculation. Also how is the drawdown calculation done? A simple subtraction of peak-to-trough?
About Balance and Equity:
So is it correct to say that when you have no open trades, your Equity and Balance should be the same amount?
How would/should I interpret the Drawdown and Margin Level numbers I see?
Hi @new.trader, as your performance chart isn’t reflecting averaging strategy, I assumed you are just putting many positions, close when it became profit. Win rate is not because of last 4 positions, the way you hold your position, profit vs draw down.
Hello @TYGMedia, why do you say my performance chart isn’t reflecting averaging strategy?
So are you saying that even if the last 4 losing trades had not happened, my win rate would still not be good (because of some other reason, for example my RRR)?
But maybe I do have a good risk/money management. Maybe for example, I have tiny accounts like this $100 account, and the whole account is the stop loss for example.
Btw, I just give opinion base on your performance. Don’t be too bothered with my opinion, because you probably has good reason to trade your own perspective. As I mentioned before, I also have strategy that will risk all of my capital. As long as you feel good with what you are doing, don’t think too much. We are the one who know better about ourselves.
As I told you before, above, I only talk about fact, without knowing your background. A pro trader can have a very bad result as part of the strategy. Example, by using roulette’s strategy.
As trader, I don’t think too much about all possibilities, my opinion will change base on facts on the table. You have rights too share your condition to discuss here, but telling limitless probabilities will lead to wild debate. Ego and pride will have priority more then objectivity
I may be a president of US, I may be living on Mars, I may be the God of all live being… what next?
Thank you @TYGMedia. Don’t get me wrong, I’m not bothered at all. I was just curious, wanted to learn more about your perspective. That was all.
And yes, one aspect of my risk management is to have a small account and make the whole account be the stop loss. As long as the broker offers Negative Balance Protection, I’m alright with losing the whole account.
Having strategy SL is the whole account is workable. But this kind of strategy can’t let you trade using bigger fund. For example, I use the same strategy with limit up to 2k only. I dare not to trade more than that. But using proper strategy, I able to manage account more than 100k.
Nothing is wrong, as long as you can grow and satisfy with the result
Having a positive response will make my day 
