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Drawdown: how does it affect your trading and account 163 replies

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What drawdown does everyone use?

  • Post #1
  • Quote
  • First Post: Dec 22, 2006 2:18am Dec 22, 2006 2:18am
I kno it differs from person to person, and their tolerance to risk. Just wondered where everybody is at. I'm aiming for a 5%.
My only comment would be; most of the time, whatever you aim for, you get..

So I'd highly recommend you aiming for 0%!! ;-)

That said, drawdowns don't mean anything except psychologically.

You want to look up "Risk of Ruin" and "Position Sizing". That will add more meaning to your trading life..
google:
I like your signature. and and good reply as well. And I guess "aiming for" was a bad way of putting it. But you guys get it.
If you don't aim for 50% draw down, you're not living life to the fullest.
Bundy's status today: "Waiting..."
Quoting bundyraider
If you don't aim for 50% draw down, you're not living life to the fullest.
I went into stocks like that. I came out with half my money gone. Sure was fun! Doesn't put food on the table though. And it really was fun. Better than a rollercoaster.
Quoting ch33z3
I went into stocks like that. I came out with half my money gone. Sure was fun! Doesn't put food on the table though. And it really was fun. Better than a rollercoaster.
I was lucky enough to come in at the right time and got lucky. ...And that probably did MORE damage than if I'd lost half. LOL
Bundy's status today: "Waiting..."
I think the correct question should have been how much drawdown traders out there tolerate...

I can tolerate drawdown up to 35% but thank GOD I haven't seen this uptill now...I once saw more than this but I was a kid in the trading arena at that time...But now I don't let my drawdown go below 35%...


Thanks,

Nader
I don't think MT4 properly reflects drawdowns in their statements. I'm pretty sure they only display the drawdown of closed trades, not the lowest extent of your account when a trade was open.

So it could should up as a max. 20% drawdown in the report, when you had a 50% drawdown (but it came back to 20% by the time you closed it).

Unless I am not understanding something correctly. But I think this is how it works.
10 pips plus spread!!!
I do not use stops so I will typically allow large drawdown. However, I terminate a trade when I get a buy signal or sell signal contradicting. If I am in the market short I have reasons for that short... if I get a reason to go long... I best use that as an excuse to terminate my order... whether I take the new trade or not.
The market is my nation. Traders, my family. Hello, brothers and sisters!
Quoting Hotshotfx
10 pips plus spread!!!
You need a better broker. Try Oanda or GFT. If you dont like MMs try EFX or MBT.
The market is my nation. Traders, my family. Hello, brothers and sisters!
What's wrong w/ my broker?
Quote
I kno it differs from person to person, and their tolerance to risk. Just wondered where everybody is at. I'm aiming for a 5%.

ch33z3,
Can you be a bit more specific?
In a worst case scenario, does your trading system exhibit a 5% drawdown over a certain timeframe, or do you mean that you are willing to lose 5% per trade?

Because, from what I understand as drawdown, 5% sounds a bit on the small side!
Ever alert for the call to action!!
Quoting LumoX
ch33z3,
Can you be a bit more specific?
In a worst case scenario, does your trading system exhibit a 5% drawdown over a certain timeframe, or do you mean that you are willing to lose 5% per trade?

Because, from what I understand as drawdown, 5% sounds a bit on the small side!
My max drawdown allowed before I take a few days off and review what's happening with my trading is no more than 4-5% of my total capital.

My tolerance for drawdowns is almost equal to zero.
Quoting LumoX
ch33z3,
Can you be a bit more specific?
In a worst case scenario, does your trading system exhibit a 5% drawdown over a certain timeframe, or do you mean that you are willing to lose 5% per trade?

Because, from what I understand as drawdown, 5% sounds a bit on the small side!
You're right on the small side, I increased it to 10% because it wasn't far away enough. Very probable that a spike can hit my stop.

As far as drawdown goes, how much of your account you lose on a trade would be a draw down. If you started with 5k, won another 5k and lost 2k. Drawdown would be 2k even tho you're up 3k.
Quote
If you started with 5k, won another 5k and lost 2k. Drawdown would be 2k even tho you're up 3k.
IMHO - yup.

Quote
As far as drawdown goes, how much of your account you lose on a trade would be a draw down
IMHO - nope. (Unless you were previously at an equity curve peak and your last trade was a loss)

I would describe drawdown as the drop in your equity curve from it's highest point. You could have variations on that such as 'current drawdown', or 'maximum drawdown'.
I would not describe the % amount of your equity you are willing to risk on every single trade as drawdown. I would call that equity risk.

So please don't misunderstand what I meant by a 5% drawdown is a bit small.
I did not mean for you to take a rash statement from a forum then suddenly double your equity risk on your current trade!!! :surprised (and please tell me you didn't do that!!??)

Italiansharp - you must have either a really accurate system or use a small equity risk per trade??
Ever alert for the call to action!!
Quoting LumoX
So please don't misunderstand what I meant by a 5% drawdown is a bit small.
yes, I too was wondering what kind of magic system produces good returns with no more than ever floating more than -5% of the account.

You would need a perfectly precise entry every time.. or trade such small lots that your account grows at a meager pace.
Quoting ycomp
yes, I too was wondering what kind of magic system produces good returns with no more than ever floating more than -5% of the account.

You would need a perfectly precise entry every time.. or trade such small lots that your account grows at a meager pace.
lol, I don't plan on getting rich offa forex. That endeavor should come in time. For now, I'm just trying to make a living offa forex. My goal is to make a certain amount as cash flow, being 300 dollars a day, or 1000-1500 a week, whichever comes first. As account grows, and hopefully withdrawing once a month for bills, and not exceeding what I make, it'll be easier to hit the mark. As far as the magical system. It's not, I moved away from the cluttered charts and look at just 2 moving averages. And this MACD looking thing that I programmed.
  • Post #19
  • Quote
  • Last Post: May 4, 2012 5:50pm May 4, 2012 5:50pm
Hi!

I'm developing a system, and want to know what do you think about having a per pair max drawdown of 5% and per account 25%

That means, on any time, the max drawdown on a pair will be less than of 5% and the sum of all drawdowns on all traded pairs less than 25%

When the per pair DD is exceeded, then the trade's lot size will be reduced on that pair up to a level where the DD is below that 5%.

When the account DD is exceeded, then no more trades are allowed until the current DD is reduced AND all the pairs will reduce the lot size for new trades.

Do you think it is correct?
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