The Best System on forex-factory forum | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

Please suggest a simple & effective Method/System of "Trading System" Forum to newbie 182 replies

The life of a trading system on Forex Factory 1,735 replies

Which system is the best? Or which combinations of systems work the best? 46 replies

The Best of Forex Factory 19 replies

The quest for the best forex trading system 28 replies

Attachments: The Best System on forex-factory forum
Exit Attachments

The Best System on forex-factory forum

  • #1
  • First Post: Sep 7, 2007 5:35am Sep 7, 2007 5:35am
Hi everyone,

The main purpose of this trading room section is that experienced people post or open topics and that non-1KT members can read over them and learn from it.
I know that for most members of 1KT I'm not telling anything new with this topic.
But many times I have been asked the same question...
Could you please help me in pointing me to a good system...or can you tell me wich system on this forum is best for me....
It is an important question so I wanted to open a topic on it to give my vieuw and also others people can place their reaction. Because I think it will help some of the non-1KT members.

It is absolutly impossible for someone to say to you what system you should follow.
It is the same as I would say to you what you should eat or what clothing you should were or what car you should drive.
Each trading system has its own specific trading caracteristics.
People think that the important thing is to JUST FIND a profitable system. But it is not.
As Chuck Goslin writes in his book Intelligent Futures Trading p.15:
Before attempting any activity, examine yourself realisticlly.
Learn your capabilities; Recognize your desires.

Determine what you can and can not do.
Discover what you want and do not want to do.

Accept what you might and might not be able to do.
Acknowledge what you will and not will do.

To achieve the best results, find that point where your abilities and inclination, your capacity and desires, most closely overlap.
Only you, trough self-knowing, can discover this optimum point.

This all sounds like a lot of blah-blah but it is not.
To give you an important example:
If you are a person who is sitting all day long in front of his pc and you watch every tick developping on a chart and you try to follow a volatility breakout system ( a robust and reliable systems) you will do very bad. The reason is that you will try to interveen when you see a position giving back profit or going in to loss. And an important rule is that you need to follow the rules of a system 100% no matter what happens.
Once you started to interveen ( even if it saved you money) you have no longer a system. And you will see that the system over a longer period of time will do a lot better then you.
The same goes for swing trading systems. You have positions between 2 and 7 days. During that time you will see the price moves a lot in your favour or giving back profit). If you sit all day long in front of your pc you will try to interveen in those movements. On that moment you have lost your system.

So it is up to you to find out what you want and not want. What your capabilitys are. Write them down. And then start to look for a system that fits in your profile.

See it like this, you need to make a walking trip of 20Km. And you don't have any shoes. But you are very determind and whatever it takes you will and you gonna walk those 20Km. So you ask someone for shoes. The only thing he has is a pair of rubber wellington boots who are even 2 sizes to big. You think to yourself: if I REALY want something I will get there. Well that is not true. The chance that you will need to quit after 5km because your feet are full off blisters is very big. Even if it is not after 5km the chance that you will make it to the finish with those rubber boots is almost zero...
So you need shoes who will to do the job. Your shoes need to match your profil as a walker.
Same applys to a system. You need a system that fits your profile. Even your mind can be set in such a way that you say, that system is profitable but it does not fit my profile but I gonna follow it with the nescassery discipline no matter what it takes....I garantee you that over a longer period of time you will not succeed.

Never and is say it again NEVER try to change your personality to a system because after some time your personality will take the overhand and you will not follow that system anymore.
If you don't follow the rules of a system for 100% then you become a discressionary trader again with all the results of that sort of trading.
If you would be a good discressionary trader you would not be here looking for a system.

Don't get me wrong and I don't want to sound as a teacher but to many people are sitting here and are only looking for a system or a method or an EA or an indicator that could make them earn money nothing more nothing less ( I see people using or testing EA's for weeks and they don't have the faintest idea or any clue what that EA does). They are not interesseted in becoming good traders true gaddering as much knowledge as possible. And with this knowledge trying to build their own strategys or systems. They are only interesseted in trying to earn money and as soon as possible and it does not matter how or with what.
Those people will never walk the path of succes.
Earning money true following a canned system over some period of time is not the same as beeing a succesfull trader.

If you purchse yourself a sealed EA and let it run and hope on earning money...for all the same you can give that EA to a pigmee or a 80 years old little vietnamees woman and they will earn the same money as you do...will that make them succesfull traders ?...

Succes comes with knowledge. Knowledge comes with experience. Experience comes with time and hard work.


With this topic I'm not trying to be a wise guy what so ever but I'm trying to help a little bit of those who are walking in the dark or who think they know more of trading then their neighbour and by this they think they are a trader.
And I hope this topic could help you a little bit in your quest to become a good trader.
Remember this: a good trader is not just a good trader. Once he is a good trader he becomes an expert on the field.

friendly regards...iGoR
  • #2
  • Sep 7, 2007 5:55am Sep 7, 2007 5:55am
I know that some people will be disapointed after reading this topic because of the title of this topic. If you feel disapointed because you hoped to find the best system here it proofs that you are hoping to find something that could start to make you money from today...and that is not how it works.

regards..iGoR
  • #3
  • Sep 7, 2007 6:16am Sep 7, 2007 6:16am
I sometimes read over the forums about overly complicated systems based on super high tech indicators and quantum mathematical formulas (whatever that means hehe). I read their systems and it's like if I was reading Chinese, I truly don't understand anything at all!

In my opinion some people sometimes forget that there's no need for such stuff. As far as I am concerned, old good S/R breakouts in trending markets work just fine. So I encourage new traders to try to keep things simple and to avoid clouding their thinking (and their charts) with too many elements of decision.

Occham's razor sure is a fantastic principle.
  • #4
  • Sep 7, 2007 7:43am Sep 7, 2007 7:43am
i just get margin call and wonder....
"what ' s wrong?"

of course there is many answer, blaming all to self while stand tall to all who see...
and then i decide, "i need rest"
dicipline all day long cracking me up, keeping same system all year long makes me nuts.... of course this "rest" will erase many opportunity , but i begin to think that it is worth it.
  • #5
  • Sep 7, 2007 8:33am Sep 7, 2007 8:33am
Quoting Gwan
i just get margin call and wonder....
"what ' s wrong?"

of course there is many answer, blaming all to self while stand tall to all who see...
and then i decide, "i need rest"
dicipline all day long cracking me up, keeping same system all year long makes me nuts.... of course this "rest" will erase many opportunity , but i begin to think that it is worth it.
You just got a margin call or are you quoting someone?
  • #6
  • Sep 11, 2007 2:23am Sep 11, 2007 2:23am
Quoting FXiGoR
I know that some people will be disapointed after reading this topic because of the title of this topic. If you feel disapointed because you hoped to find the best system here it proofs that you are hoping to find something that could start to make you money from today...and that is not how it works.

regards..iGoR
That was a great post and a great read. I think many would be hard pressed to add to it. I wish I could but I can't. All I can say is that I have walked in those shoes!!
Thx for taking the time to share that.
Fxj
Proper Prior Planning Prevents Piss Poor Performance
  • #7
  • Sep 12, 2007 2:51am Sep 12, 2007 2:51am
The best system is the system, which is steady and consistent

Also it should be diversified

Gaining 2000 pips a month and losing 1000 pips in the next month is not a system. Each month must end with positive result.
kiss the trend
  • #8
  • Sep 12, 2007 3:54am Sep 12, 2007 3:54am
Quoting fx-trader777
The best system is the system, which is steady and consistent

Also it should be diversified

Gaining 2000 pips a month and losing 1000 pips in the next month is not a system. Each month must end with positive result.
I VERY much agree with this. Systems that equally give and take outrageous pip-scores each different month are no good.
  • #9
  • Sep 12, 2007 7:02am Sep 12, 2007 7:02am
Quoting fx-trader777
The best system is the system, which is steady and consistent

Also it should be diversified

Gaining 2000 pips a month and losing 1000 pips in the next month is not a system. Each month must end with positive result.
Do you realize that if you would have a system that would make every month 2000 and next month give back ONLY 50% of the previous month that you would end up with 12.000pips profit ??...
Do you realize that your biggest risk (MaxDD) would have been ONLY 1000 pips ??..
That this would mean that you have a system with a sterling ratio (R/R ratio) of 12 (twelve) !!??...
Do you realize that these are the technical caracteristics of a Holy Grail ?!...
Do you realize that what ever amount of pips you make and give back the next month only 50% of the previous month ( making 100pips a month and next month give back 50 pips) that this will always be a Holy Grail ??...
Do you realize that if you have a system that makes every month money that on a monthly/yearly base you risk is ZERO ?...
That if you use such a system with the addapted leverage you will end up in the 1000's (thousands)% of profit at the end of the year ??
That if you have a system that makes profit every month that with the nescessary compounding (wich you can do easely because your risk on monthly base is ZERO) that in 3 years time you gonna be richer then Warren Buffet ??
Do you know that every TRUE professional trader or institute looks to the results at the END of the year ??

If you have a system that produces EVERY month profit I'm willing to pay big money for it BIG money...

If you would have a system like that remember to show equity curves over at least a 7 year period or more like here: http://www.forexfactory.com/showthre...=28891&page=13 from posting # 187 till posting # 192.
If you combine those equity curves they produce more then 90.000pips over the last 7 years but still there are months were you make loss.

friendly regards ..iGoR

PS. for a moment I tought we were not in the so called experienced section anymore
  • #10
  • Edited 7:29am Sep 12, 2007 7:11am | Edited 7:29am
Here a little sceduele how your accounts could look like with a zero monthly risk in a year from now...

The sceduele is on a zero risk weekly base of 125 pips but I can ashure you with a monthly zero risk of 1000pips you gonna end up VERY close...
Eeven with a zero risk monthly profit of 125pips you gonna do superb after 1 year...you only have to look to the 12th line(or looking to the 12th step)-- meaning you'll turned each 1000$ into 14.000$

regards iGoR
Attached Image (click to enlarge)
Click to Enlarge Name: LANGSTON_.jpg Size: 353 KB
  • #11
  • Sep 12, 2007 7:28am Sep 12, 2007 7:28am
FXiGor,

Do you realize that most system developers consider a system broke and take it offline way before it experiences a 50% drawdown?

Do you realize that from a psychological perspective, virtually no one would endure a 50% drawndown and faithfully trade another month?

Do you realize that you have to double your account to recover a 50% drawdown?

Do you realize that the first month could be a -1000 pip month and most, if not all, would quit?

Do you realize that a system that is right 2/3 of the time runs a 21% risk of having 5 losing months in a row (5000 pips) in a 50 trade sequence?
  • #12
  • Sep 12, 2007 7:42am Sep 12, 2007 7:42am
Quoting philmcgrew
FXiGor,

Do you realize that most system developers consider a system broke and take it offline way before it experiences a 50% drawdown?

Do you realize that from a psychological perspective, virtually no one would endure a 50% drawndown and faithfully trade another month?

Do you realize that you have to double your account to recover a 50% drawdown?

Do you realize that the first month could be a -1000 pip month and most, if not all, would quit?

Do you realize that a system that is right 2/3 of the time runs a 21% risk of having 5 losing months in a row (5000 pips) in a 50 trade sequence?
Hi Phil,

You should read again what I explained.
A drawdown of 50% of the profit of the previous month is not the same as having a 50% drawdown on your account.
I say if one gives only back 50% of the profit from the previous month that this is VERY VERY small patatoes.

I am a system develloper for 11 years and 3 years as a fund manager so I know what I talk about.
My fund is managed in a very conservative way.
I would never let someone have more then 20-25% loss or risk during a year on his account. Never.

You see this wrong my friend. If you make 2000pips in january and you lose 1000pips in february then you have lost 50% of the profits of the month of january. You did not lose 50% of your money nore did you have a 50% drawdown. Yes you have a 50% drawdown on the january results but Max DD is calculated over a whole year. And in real such a drawdown should not have more then 5% drawdown on your account.
That is why I said: do you realize that professionals or institutes look to the results at the end of the year.
And even more a sterling ratio is calculated over a 3 year period. The total result over 3 year gets devided by 3 and this number gets devided by the biggest drawdown ever happen over this 3 year period. Then you have a reliable sterling ratio were you can start to build your money management on and your leverage.

friendly regards...iGoR

PS. If you can show me a system or method or results that have an overall profit that is 5X (five !) times bigger then the MaxDD (biggest risk or drawdown) over a whole year I'll be very very interesting to look at it (or buy it) ( meaning for exapmle that you make 1000pips at the end of the year and your worst drawdown was only 200 pips OR that you made 10.000pips at the end of the year and your biggest drawdown was not bigger then 2.000pips)..again I would be more then interested.
  • #13
  • Sep 12, 2007 7:48am Sep 12, 2007 7:48am
Quoting FXiGoR
You see this wrong my friend. If you make 2000pips in january and you lose 1000pips in february then you have lost 50% of the profits of the month of january.
Assuming January is the first month of trading this system what happens if you start out with a 1000 pip loss? Does that get ignored since there was no initial profit? Would you promise your clients that the first month would be a winner?
  • #14
  • Edited 8:23am Sep 12, 2007 7:58am | Edited 8:23am
Quoting philmcgrew
Assuming January is the first month of trading this system what happens if you start out with a 1000 pip loss? Does that get ignored since there was no initial profit? Would you promise your clients that the first month would be a winner?

If you trade for other people or in a professional way it will be based on historical results.
In those historical results you know what your drawdowns are (as for exapmle I show on my equitycurves over a 7 year period) you adjust your leverage in such a way that this could not harm them.
If you know that a drawdown of 1000pips could happen frequently then you addapt your leverage in such a way that if it occurs (like I said in my previous posting) that they would lose NO more then +/- 5% on their account. Meaning if the next month it happens again they can lose an other 5%. if this would happen 4 months is a row that they would lose no more then 20%. So that means if there is a drawdown of 4000 pips people have not lost more then 20% of their account.
If at the end of the year we would end up with 10.000pips profit then people would have made 50% profit (10.000/4.000=2.5)
That would mean a reward/risk ratio for that year of 2.5 (wich is already VERY good in the eyes of a true professional) the exapmle given by fxtrader was an unrealistic R/R higher then 10 (wich will make you a billionaire in no time)

Remember that everything falls or stands with the leverage used.
If one wants to trade for a living from a couple of thousand dollar account he will pump up his leverage is such a way that he could make severall thousands of dollar during that year but sooner or later if he faces a serious dradwon with that leverage he burns his account.
My leverage is in such a way ( and doesn't matter if one loses 1000pips or 10.000pips or 100.000pips) the max risk of losing money will not be bigger then 20%. The yearly overall profits were around 50%.
So again if you have backtests that reveal that you can make avg. 10.000pips yearly profit but you see that your highest risk during a 3 year period was 3.000pips then you use your leverage is such a way that if people would lose 3000pips that at this moment they would not lose more then 20% of their money.
IF you have the feeling that you would never survive a 3.000pip loss then that means that you are way overleveraged.
The same goes for the example making 1.000 pips profit over a year and a max. risk of 300 pips.
But the problem is that people dream of making 10.000pips but think they can achieve this with a drawdown of only 500pips. Wich is ABSOLUTLY impossible.
As I said if you can show me whatever a system that makes whatever amount of pips and the yearly profit would be 5X times bigger then the max amount of pips you lost in your worst period you are on a MEGA system.

friendly regards...iGoR
  • #15
  • Sep 12, 2007 8:17am Sep 12, 2007 8:17am
iGor,

Please don't make this personal and accuse me of not being serious. I'm taking time out of my schedule to discuss this and I couldn't be more serious.

You can't have it both ways when it comes to drawdown. You can't say 1000 from 2000 is 50% and then later say "oh I would position size for that and I wouldn't lose more than 5%." Drawdown is a defined term and not open to interpretation.

Pips made and lost have nothing to do with risk:reward. You can't say "I made 2 pips and lost 1 therefore my R/R is 2:1." It doesn't work like that. Risk is how many pips you put on the line to see how many pips you make. You can easily lose 1000 pips while risking 5000 pips.
  • #16
  • Edited 9:15am Sep 12, 2007 8:53am | Edited 9:15am
Quoting philmcgrew
iGor,

Please don't make this personal and accuse me of not being serious. I'm taking time out of my schedule to discuss this and I couldn't be more serious.

You can't have it both ways when it comes to drawdown. You can't say 1000 from 2000 is 50% and then later say "oh I would position size for that and I wouldn't lose more than 5%." Drawdown is a defined term and not open to interpretation.

Pips made and lost have nothing to do with risk:reward. You can't say "I made 2 pips and lost 1 therefore my R/R is 2:1." It doesn't work like that. Risk is how many pips you put on the line to see how many pips you make. You can easily lose 1000 pips while risking 5000 pips.

Phil I apoligize about beeing serious I changed my posting.

But you see this not correctly.
1st) Please read back to my first reaction on this gaining 2000pips and next month giving back 1000pips.
I said if someone would make 2000pips and next month lose 1000pips he would ONLY lose 50% of the profit of the previous month.
Maybe it is a bit unuasal to calculate like this but it is only to show or say that a loss of 50% of the profits of the previous month is very very small.
That does not refer in any way of losing 50% of your capital nore having a drawdown of 50%.
2nd) you started to look at this in terms of 50% drawdown.
Drawdown can not be looked at on weekly nore monthly base to base your money management on.
I said that drawdown is looked at on a yearly base and professionals will look at it on a 3 year base.

You asked me then what my clients would say if they face a 1000pips drawdown ?...I say they would not blink an eye because my leverage would be in this way that the 1st month of the year if this would happen they would only lose 5% of their account. Nothing wrong with that. Except of course if one would have said to his clients that he makes EVERY month profit.
I stated then, even if they would be faced 4 months in a row with this drawdown (and my backtests showed me this kind of scenario's) it would not lead to a total loss bigger then 20%.

And as reply on what fxtrader and WTB said about every month profit or making a month of 2000 profit and giving back next month "only" 1000pips: if one would make a monthly profit of 2000pips and next month you give back ONLY 1000pips and you do this for a whole year one would end up with an EXTREEM unrealistic profit.

So I don't see why you say:
Quote
Do you realize that most system developers consider a system broke and take it offline way before it experiences a 50% drawdown?

Do you realize that from a psychological perspective, virtually no one would endure a 50% drawndown and faithfully trade another month?

I never talked about a 50% drawdown. A 50% drawdown is taken from a minimum of 1 year. I said:
Quote
Do you realize that your biggest risk (MaxDD) would have been ONLY 1000 pips ??..
That this would mean that you have a system with a sterling ratio (R/R ratio) of 12 (twelve) !!??...
Do you realize that these are the technical caracteristics of a Holy Grail ?!...
Do you realize that what ever amount of pips you make and give back the next month only 50% of the previous month ( making 100pips a month and next month give back 50 pips) that this will always be a Holy Grail ??...
And is still what I say: if this scenario would happen the biggest MaxDD over that whole year would only be 1000pips and the overall profit would be 12.000pips. That is an unrealsitic reward/risk ratio. Meaning that one had a biggest risk that year of losing 1000pips were he gained himself a profit of 12.000pips.

I would never speak about a drawdown in percentage because I don't know what the starting amount is of a certain account and most important I don't know what the leverage is. But I know what the reward/risk ratio is if one makes every 2 month 2000pips and loses every 2 month 1000pips.
So I don't see your point of telling me that a drawdown of 50% will lead emmidiatly to stop with a certain system ?..I never talked about a drawdown of 50%....( as said before I would never accept a MaxDD on the account of more then 25%)


friendly regards
  • #17
  • Sep 12, 2007 9:28am Sep 12, 2007 9:28am
Quoting FXiGoR
I would never speak about a drawdown in percentage because I don't know what the starting amount is of a certain account and most important I don't know what the leverage is. But I know what the reward/risk ratio is if one makes every 2 month 2000pips and loses every 2 month 1000pips.
So I don't see your point of telling me that a drawdown of 50% will lead emmidiatly to stop with a certain system ?..I never talked about a drawdown of 50%....( as said before I would never accept a MaxDD on the account of more then 25%)


friendly regards
I think we need to define drawdown. Here is a widely accepted definition from investopedia.com:

The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the trough.

A drawdown is measured from the time a retrenchment begins to when a new high is reached. This method is used since one cannot measure a valley until a new high occurs. Once the new high is reached, the percentage change from the old high to smallest trough is recorded.

Drawdowns are timeless. In other words, it is not quoted with respect to time at all. It is quoted as the percentage amount you lose before you start making money over and above your previous high. Can we agree on that?
  • #18
  • Sep 12, 2007 9:45am Sep 12, 2007 9:45am
Quoting philmcgrew
iGor,

Risk is how many pips you put on the line to see how many pips you make. You can easily lose 1000 pips while risking 5000 pips.
There are 2 different ways to look at the term reward/risk ratio's.

1) Reward/risk ratio on a yearly base ( professionals prefer to call this the sterling ratio)
that is your total reward over 1 year / your biggest loss.
Meaning that one has some overall profit and had somewhere during that year a risk.
That risk can be zero. If one takes of at the beginning of the year and makes emmidatly severall profits and you account never goes under the initial starting amount anymore then one could say that your risk was zero.
But it is not looked at it in this way. For all the same you could have your biggest streak of losers somewhere in august and one would just start that very same moment.
So to keep it simple total year profit devided by the biggest intermediar loss during that year (profit at the end of the year is 3000pips the biggest drawdown somewhere during that year was 1000pips = 3000/1000= R/R 3:1.

2) An other way to look at reward/risk ratio is, if one enters in the market and you know that you have a predifend stoploss and you have a target.
for ex. one is sitting on a support line. And want to go long. You will place your stoploss somewhere under the support line and maybe your target is the resistance line. So that could lead for ex to a 50pips loss or a 200pip target (profit). For that trade one can then say that your reward risk ratio was 4:1.
Meaning that your possible profit is 4 x times bigger then your possible loss.

In my previous postings I was refering to the sterling ratio (reward/risk ratio in the 1st example)

friendly regards...iGoR
  • #19
  • Sep 12, 2007 10:10am Sep 12, 2007 10:10am
Quoting FXiGoR
There are 2 different ways to look at the term reward/risk ratio's.

1) Reward/risk ratio on a yearly base ( professionals prefer to call this the sterling ratio)
that is your total reward over 1 year / your biggest loss.
Meaning that one has some overall profit and had somewhere during that year a risk.
That risk can be zero. If one takes of at the beginning of the year and makes emmidatly severall profits and you account never goes under the initial starting amount anymore then one could say that your risk was zero.
But it is not looked at it in this way. For all the same you could have your biggest streak of losers somewhere in august and one would just start that very same moment.
So to keep it simple total year profit devided by the biggest intermediar loss during that year (profit at the end of the year is 3000pips the biggest drawdown somewhere during that year was 1000pips = 3000/1000= R/R 3:1.

friendly regards...iGoR
Here's the defnintion of risk/reward from investopedia. Note that as I politely pointed out earlier it is not consistent with your view.

A ratio used by many investors to compare the expected returns of an investment to the amount of risk undertaken to capture these returns. This ratio is calculated mathematically by dividing the amount of profit the trader expects to have made when the position is closed (i.e. the reward) by the amount he or she stands to lose if price moves in the unexpected direction (i.e. the risk).

This definition of the Sterling Ratio is also false. Here is the correct definition of the Sterling Ratio (also from investopeida.com):

A ratio used mainly in the context of hedge funds. This risk-reward measure determines which hedge funds have the highest returns while enduring the least amount of volatility. The formula is as follows:


http://i.investopedia.com/inv/dictio...rlingratio.gif

This formula uses the average for risk (drawdown) and return over the past three years. Drawdown is calculated at the maximum potential loss in the given year.

The Sterling Ratio places emphasis on volatility and not just drawdown. I realize you need us to acknowledge that you are a professional but if you're going to use big words like professionals you should endeavor to know their meaing before using them.
  • #20
  • Sep 12, 2007 10:26am Sep 12, 2007 10:26am
Quoting philmcgrew
I think we need to define drawdown. Here is a widely accepted definition from investopedia.com:

The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the trough.

A drawdown is measured from the time a retrenchment begins to when a new high is reached. This method is used since one cannot measure a valley until a new high occurs. Once the new high is reached, the percentage change from the old high to smallest trough is recorded.

Drawdowns are timeless. In other words, it is not quoted with respect to time at all. It is quoted as the percentage amount you lose before you start making money over and above your previous high. Can we agree on that?
Sorry phil we can not in this way.

If you look to tradestation or metastock they have 4 or 5 different ways of discribing drawdown so what investopedia says is not important or doesn't have to be the same as traders look at it.

You can have drawdown on initial capital. You can have dradown on open trades. You can have drawdown on closed trade. You can have drawdown on combined closed trades.
But the drawdown that I speak of and that professionals accpet or speak of is "end of day". Because that is when the setlements happen in the future markets.
So let say that if at the end of day the 16th of august your equitycurve shows an all time high of 150.000$. and the next days and weeks and maybe months you start to have severall losing trades and now and then a winning trade in between. At the end of the day of the 5 th october your equity curve is at 120.000$. Next day it starts to go up again and you never get under that 120.000 anymore then you had a drawdown of 30.000$ or 20%.
If during that whole year you would not face a drawdown in money bigger then 30.000$ then your MaxDD ( maximum drawdown) for that year will be counted as 20%.

If one realy wants he can look for his reward/risk ratio at the end of the month but money management can not be based on it.
One can look in his excel spread sheet at the end of the month and say I made 300pips. One can take a drawdown chart form that eqquity curve and see that his biggest drawdown was 100pips. Weel one could say to himself that month I had a reward/risk ratio of 3 or I had a Max drawdown of 33% of that particular monthly profit.

iGoR

on the image you can see how one easely see his maxDD. The equitycurve on top is an account were the results are placed in every end of the day (each little dot is a new day.
The chart bellow is the MaxDD chart from the very same equity curve on top.
For that exapmle one could say the total profit is 60.000$ over that period whole period and the MaxDD as you can see was 10.000$ so that would come to a sterling ratio or reward /risk ratio of 6.
BUT lets say that one would have started of with an account of 50.000$ and the biggest drawdown was 10.000$ then he would have a risk or exposure of 20% of his initial capital. Because for all the same one could have started trading this system the moment when that drawdown of 10.000$ started.
If he would change his leverage in this way that he would trade this system with 100.000$ then his risk or drawdown would only have been 10% on initial capital.
If on the other hand he thinks that a r/r of 6 is very good and thinks that he can trade this with 20.000$ he would have had a theoretical risk of 50% on his initial capital.

regards..iGoR
Attached Image (click to enlarge)
Click to Enlarge Name: MaxDD chart.JPG Size: 170 KB
0 traders viewing now