Best way to reduce DrawDown

I was wondering what is the best way to reduce DrawDown, that I don't know yet, I know at lest 2.

1º Have a bigger win%
2ª have a bigger R/R%

But to apply one of them, I must change the rules of my system witch will, decrease the returns of the system,and does not guarantee that my DD will decrease.

Please post here, which is best to you to reduce DD


PS. My Biggest DD in 2007 was 15%, but I know that in other years in the past I had a Bigger DD, and I want to fix it

I have been messing around with this too in an attempt to limit Draw Down.
I looks like not much to trade with but generally people risk to much imo

Balance 10000
Trading Days 200 per year/month/week put in the number of day you wish to trade
Max DD 17% what is the maximum dd you are willing to live with over the period above
DD Figure $1700 cash at risk.
Risk per Day $8.50 dd figure/trading days is the amout per day you can lose.
Maximum Pairs 2 the number of pairs you want to trade
Risk per position $4.25 The max loss per pair

Stop Loss ???? to calculate this is risk per position / pip value this will be dependent on the account type

I agree with the fact that modifying your R/R ratio so that reward is greater than risk doesn't make any sense unless you exit all your trades when price reaches your Stop Loss or Take Profit. And even if you do exit all your trades on SL or TP, setting a tight SL and a large TP will cause your Win ratio to decrease, just like trying to improve you Win ratio by taking smaller profits will get you a higher Win rate but a smaller reward.

Maybe You can go over your past trading history and see what happens if You change your position size after a string of losses or winnings...I don't know.

you can reduce your risk per trade. 2% risk per trade and a 15% potential drawdown, could become 1% risk per trade 7.5% potential drawdown. Seems obvious, but to most I assure you they don't think of it like this. I am glad to see someone looking out for potential drawdowns and protecting their capital. Usually it is how much can I make.

Using a Monte Carlo analysis can be very helpful as a tool, with this knowledge we apply it conservatively to our trading. Obviously you reduce your risk per trade you reduce your potential % gain, as well as % lost.

Have you tried Jacko's Anti-Hedge strategy?

I'm not sure what your system is so it may have an impact on that...BUT, maybe the idea behind it may help in limiting your losses.

I had a very similar problem a while back where I was experiencing a string of losses so I had to re-evaluate the way I was trading. These are the things that I looked at and made adjustments to...

1. I was trading 6 pairs or more. I thought more was better. BIG mistake. I found I wasn't as focused when I was monitoring so many pairs.
2. Trading the most volatile pairs thinking I could get more pips quickly. BIG mistake. If you can get more pips quickly, you can LOSE just as quickly.
3. Look at the spreads of the pairs. If you're going to get into a trade with a pair that has a spread of 6-10 pips, you're already down 6-10 pips and the trade hasn't even played out yet.
4. Over trading. This is still a problem of mine and I'm trying hard to work on it. I've now switched almost entirely to daily charts and beyond to help with this.
5. Another option you could look at is using trailing stops.

What you could do that I think someone mentioned is to start a journal of your trades. Don't just analyze your trades though, analyze yourself. If you're finding the urge to always be in trades, THAT is a problem so get rid of a few pairs. If you can't control the way you trade and be disciplined about it, winning percentage or money management won't help.

Hope this helps.


Adrian

the best way is definatly to NOT TRADE...:

When you're caught in a bad trade, hedging with closing @ zero profit on retrace, if you're sure of your main trend;

but don't let that become a trading habit

we CAN'T reduce drawdown

if we reduce drawdown we will also reduce our winning chance

and by reducing our winning chance we will be more likely to suffer consecutive losses

there is only 2 possibilities in forex:

1. if we gain fast, we will lose even faster (high margin)

2. if we gain slow, we will also lose but slower (low margin)

choosing option 2 doesn't make us a better player, it will only delayed our margin call

be smart, just come to forex factory, try out many strategies explained in here, use only demo accounts

and in 2 - 3 years perhaps we will get bored without wasting any money (but remember how much time is wasted here) i think that's the best way of "doing forex for a living"

HOWEVER, we can trade more effectively and stop wasting time on thinking how reducing dd, finding higher winning %, how to avoid losses, what time is the best entry, etc, etc

and for those who are struggling finding a sound strategy I have a nice tip of reducing drawdown or to trade in a more effective way:

during my forex course I have categorized day traders in two:

1. trend raiders
2. range traders

I have seen many, many, many trend raiders playing using H1 timeframes, sometimes even 15 and 5 minutes, this is to me is not effective and I'm not surprised to find them having a high number of consecutive losses

a trend raider should use higher timeframe with more opportunities for the market to establish a good, nice trend (at least 2 weeks or more in a good trend) - and as you analized you will find that even at higher tfs, there will be times when price are just consolidated, it is part of the game

vice versa for range traders

happy pipping

I would suggest that no more than 5% is best and for sure no more than 10% for a draw down. It is easier to recover from a 10% draw down than it is a 25%. You can make up the 10% in a couple of good trades. But you have to over come some emotional bagage when the drawdown gets down to 25%.

By trading a demo account you will see how difficult it is to recover from a large loss. When you have a draw down of 10% in your live account it can help to do some extra demo trading to get your advantage back in shape.