Thanks for your post IBX!
So, an example. Let’s say I am running a $2k account. My lot sizes are .01 for the opening position and .03 for the martingale. If, in your example and for the sake of simplicity, 6 pairs open a 1% position, my account is now hit with a 6% draw down. Then, as bad fate would have it, they all opened up Martingale positions (another 6 positions of 3%). Your total is now 24% drawn down. This a worst case scenario. I now have 6 pairs that have gone completely the wrong way with 4% draw down for each position. That stinks but is tolerable…but…meanwhile, other pairs are churning and my account balance is going up. Now that 4% is based on a smaller account size than it is now. Let’s say those 6 pairs hold on resist the will I am mentally give them to come back…but my account is now up to the next level where I am ready to up my lot sizes and TP targets. Now my lots are .02 and .06 and slowly but surely that original 1% and 3% positions that are “locked up” aren’t taking up that much margin anymore. Take a gander at my myfxbook link for the larger/older account. I have something like 18 positions open (24 individual trades or so). Even with all of those open my current draw down is something like 16%. I have trades that have been open since September and October. I just had two close that were open since November a few days ago.
The thing that really kills my margin are the new lot sizes relative to the account size…the “I graduated to the next level” move. When you get to the next level where lot sizes are ready to go up, you are at the bottom of that “tier”. Draw down goes up at that time because you are now drawing against the account more…until trades accumulate and the account grows within that tier. The older open trades that never cane back (yet) really don’t pull on your margin as much as you think.
So for instance…let’s take the old GBP/AUD position and martingale position that opened in September. At the time those were a .01 and .03 lot sizes on a $2K account. Margin was hit normally but it was still fine as I was within my account size lot size tier. The account grew, and grew, and grew. Now that .01 and .03 lot size doesn’t pull much at all on my account because the account is so much bigger. In fact, as I stated before in a previous post, I can either let it ride or I can close it, take a small hit, reset, and let that pair start eating at a higher lot size and TP like the rest of its peers. Is it currently eating up some of my margin? Yep. Is it significant? Nope, not at all. It represents about $250 or so (not looking at it right now) in negative balance. For comparison, I made $220 or so just this morning on my “churning pairs”. So, yeah at some point I may look at killing an old pair or two to free them up to trade another day. But, letting them ride as they are doesn’t really kill much margin.
The highest my draw down has ever been since September is 29 something. That was a mix of the market shifting and me moving lot sizes up because I was at the next level. In the beginning I started with .01 and .03 on $2K, at 4K I double those. At $8K I double them once again, etc. The risk/reward ration stays relatively the same. At that ratio I figured out that the number of pairs that I could trade without a margin meltdown was between 14-18 pairs. At one point I was running 22 pairs and, I admit, there were some times where I felt uncomfortable (see: white knuckling it). Each person has their own personal pain threshold. I play more conservatively than others who are running this “system”. at 30% draw down I am not the happiest of campers…but again, even with all of the pairs I run, coupled with the lot sizes based on account size, I have only hit 30% draw down once.
Sorry for the long-winded response. I don’t want people to feel like I am trying to sell them on this. I’m just suggesting to people that maybe they should shift their focus from looking for the perfect EA or system…and look at risk reduction and capital management in relation to their account balance and the lot sizes they run.
Hope my answer(s) were helpful. Happy trading!!