What is the best Drawdown? | Forex Factory

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What is the best Drawdown?

  • #1
  • First Post: Jul 12, 2023 8:22am Jul 12, 2023 8:22am
I tried to maintained drawdown below 5%. Is it possible.

What is the drawdown rate for successful trader.
  • #2
  • Jul 12, 2023 9:38am Jul 12, 2023 9:38am
It really depends on the trader and strategy. Professionally managed funds tend to shut down after about a 20% loss. That said, if I recall correctly the turtle traders could have >60% drawdowns and come back so there's no finite rule.
  • #3
  • Jul 12, 2023 9:47am Jul 12, 2023 9:47am
Quoting ForexStats
It really depends on the trader and strategy. Professionally managed funds tend to shut down after about a 20% loss. That said, if I recall correctly the turtle traders could have >60% drawdowns and come back so there's no finite rule.
The Turtles were trading at a time of very large commodity trends. This enabled them to recoup larger DDs.

Look at all the jokers in the prop thread insisting on 10% to 12% drawdowns, then poof account blown - something I know occurs, but none of them every confess to it.
Mark ... Everything you have been told is a LIE
  • #4
  • Jul 12, 2023 1:06pm Jul 12, 2023 1:06pm
Quoting spzd
{quote} The Turtles were trading at a time of very large commodity trends. This enabled them to recoup larger DDs. Look at all the jokers in the prop thread insisting on 10% to 12% drawdowns, then poof account blown - something I know occurs, but none of them every confess to it.
Yes, and I think a drawdown in the 60% range is probably a mistake. Imagine the psychology of riding a sinking ship that far down before coming back up.

A real practical downside of that kind of drawdown is its very unforgiving. If you have a strategy and understand it's reasonable to expect a 10% drawdown, then you're down 15% you can take a hard look at what you're doing and retire the strategy if needed. If you're expecting to be down 60% at some point, and then you're down 70%, there's no coming back from it if your strategy is failing. And alpha always decays over time.

On another note, I now think it's a mistake to commit too much to any one strategy. Have 2, 3, 10 strategies trading different assets. You allocate capital to them, and when they ultimately fail you take capital away. If you're running 10 strategies and your allocated capital to one is down 30%, you're really only down 3% when you retire the strategy. That's a whole lot safer. This approach is only feasible if you're fully algorithmic though.
  • #5
  • Jul 12, 2023 2:18pm Jul 12, 2023 2:18pm
Quoting ForexStats
{quote} Yes, and I think a drawdown in the 60% range is probably a mistake. Imagine the psychology of riding a sinking ship that far down before coming back up. A real practical downside of that kind of drawdown is its very unforgiving. If you have a strategy and understand it's reasonable to expect a 10% drawdown, then you're down 15% you can take a hard look at what you're doing and retire the strategy if needed. If you're expecting to be down 60% at some point, and then you're down 70%, there's no coming back from it if your strategy is failing....
A big issue with draw down is one wastes time with recovery as opposed to using capital to make more.
Mark ... Everything you have been told is a LIE
  • #6
  • Jul 12, 2023 2:34pm Jul 12, 2023 2:34pm
"Appropriate" drawdown always depends on amount of Profit you wish you can make. I try to earned 8-10% a month, 100% a year, therefore I am OK with 15-20% DD, but anymore and my technique will become obsolete.(so far so good)
  • #7
  • Jan 6, 2024 3:31pm Jan 6, 2024 3:31pm
Quoting azmiahmad
I tried to maintained drawdown below 5%. Is it possible. What is the drawdown rate for successful trader.
The key variable is how did the drawdown happen?
Do you Start with a big lotsize, do you add into losses and have exponetiall growhing risk? Will the drawdown gain Speed against you?

I would say you need a small lotsize to blance ratio and room for trade management.
You dont want small moves in price to cause fast drawdowns and spikes in equity, that just wont work longterm.
You want to stay in the game, so i personally would say 8-12% max drawdown, but the question is how does it happen? How is it managed? Thats the Key variable. What needs to happen to recover from this drawdown? Only then you can stay true to your max drawdown, by having it planned upfront.

The other factor is risk to reward. Did taking that 3%, 5% or 12% risk made sense?
Could you close enough profits inbetween drawdowns to Cover them with profits? Do the numbers make sense and is it worth taking those risks longterm?

For example, if you stay below 7-8% Max drawdown and you close 4-5% gains a month, you have 48% - 60% gain a year with below 7% max drawdown, that for sure makes sense. You will have enough profits to Cover drawdowns without touching your initial deposit, you only risk profits at some point.
1k to 100k Copy Trading All Time Return: 367.9%
  • #8
  • Jan 7, 2024 5:23am Jan 7, 2024 5:23am
Quoting azmiahmad
What is the drawdown rate for successful trader.

Among employed traders, with professional risk managers, 4% has usually and widely been considered an "industry standard". I’ve heard 5% quoted, as well, in some places.

Of course "employed trader" is not quite the same thing as "successful trader," though. Some are independent and successful (but those are never trading spot forex or CFDs, for all the obvious reasons.)
  • #9
  • Jan 7, 2024 8:14am Jan 7, 2024 8:14am
Quoting KarlKraus
{quote} Among employed traders, with professional risk managers, 4% has usually and widely been considered an "industry standard". I’ve heard 5% quoted, as well, in some places. Of course "employed trader" is not quite the same thing as "successful trader," though. Some are independent and successful (but those are never trading spot forex or CFDs, for all the obvious reasons.)
why? thats wrong with Spot forex and CFD , this depends on trading timeframe and market! for example daytrading currencies only idiots choose futures. or when you are so extrem regulated (because you have Chosen wrong by designing the fund) that you cant choose different.

when you trade some years, you will start not believe this trading mistakes from others (like futures are always best and so on). for any timeframe and market is one best option, thats one basic to learn at beginning (i know, stupid unexperienced coaches and youtube beginners teach wrong facts here, so you got this wrong fact maybe?!). you should not write this wrong fact again and again in a forum, or you teach your wrong information to others. and also helps yourself to get over the beginner trader level more easy.
  • #10
  • Jan 7, 2024 9:00am Jan 7, 2024 9:00am
Quoting driven18
"Appropriate" drawdown always depends on amount of Profit you wish you can make. I try to earned 8-10% a month, 100% a year, therefore I am OK with 15-20% DD, but anymore and my technique will become obsolete.(so far so good)
But with 10% profit per month it is not possible to recover 20% loss. What is the math behind that numbers? It make no sense.
Observer effect
  • #11
  • Jan 7, 2024 9:31am Jan 7, 2024 9:31am
This is entirely wrong question as the drawdown will greatly depend on the circumstances
such as the trading method, traded instrument, current instrument market volatility, etc.
  • #12
  • Jan 7, 2024 10:46am Jan 7, 2024 10:46am
Quoting Trader191
when you trade some years, you will start not believe this trading mistakes from others

Thanks very much for correcting my inexperienced impression.


Quoting Trader191
you should not write this wrong fact again and again in a forum, or you teach your wrong information to others

So sorry, I won’t post any more to try to help people, then.


Quoting Trader191
and also helps yourself to get over the beginner trader level more easy.

Many thanks. I’m obviously slow with that. I’ve only been trading professionally for 34 years so far, and for only 2 investment banks and 2 hedge funds, so I must still have a lot to learn. I just guessed (obviously wrongly) that not many people here would know about the standard "industry 4% rule" which seemed to be the exact answer to the specific question asked in the original post.

It's lucky for everyone that you were here to correct all my misinformation.

  • #13
  • Jan 7, 2024 11:18am Jan 7, 2024 11:18am
Quoting ryuryu
{quote} But with 10% profit per month it is not possible to recover 20% loss. What is the math behind that numbers? It make no sense.

Drawdown usually means floating/Open losses.
The numbers make sense, the question is, is the risk worth the rewards?
If you make 10% a month and you manage to stay below 20% total drawdown, you will build and close profits which will Cover drawdowns at some point.

But i personally think 20% drawdown is way too high, specially for 10% gains.
I aim for my drawdown to be smaller then my average monthly gain, so if i do 4-5% a month, I would aim not to have higher drawdowns then that to be safe longterm.
Meaning after 1-2x months i would only risk previous profits for floating drawdowns, my initia deposit would be safe at that point.
1k to 100k Copy Trading All Time Return: 367.9%
  • #14
  • Last Post: Edited 6:59pm Jan 7, 2024 11:45am | Edited 6:59pm
Quoting KarlKraus
{quote} Thanks very much for correcting my inexperienced impression. {quote} So sorry, I won’t post any more to try to help people, then. {quote} Many thanks. I’m obviously slow with that. I’ve only been trading professionally for 34 years so far, and for only 2 investment banks and 2 hedge funds, so I must still have a lot to learn. I just guessed (obviously wrongly) that not many people here would know about the standard "industry 4% rule" which seemed to be the exact answer to the specific question asked in the original post. It's lucky for everyone...
you can do it wrong long time.

you was maybe only in a fund or something and are not so experienced in self trading, or you would know about this future/cfd fact. i can only judge what you write here, and you repeat this mistake very often. so i only tried to stop you write this mistake again and again, there are people who believe in this and then think you are correct and trade because of this total wrong object for their trading goal.

when you only come from funds i can really understand your experience with futures, because many dont know so much about rest , because of regulations inside funds. but long experience is nothing , you can still dont know about basics... you see how easy was happen yourself - can same easy happen myself and i would love someone correct myself then! growing by learning!

you could not see that my answer was to your wrong cfd/future text?
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