What do you consider as "acceptable" drawdown | Forex Factory

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What do you consider as "acceptable" drawdown

  • #1
  • First Post: Jan 20, 2015 7:27pm Jan 20, 2015 7:27pm
After a couple years of trading and trying different systems looking back at my Myfxbook stats I have discovered that my risk appetite has varied pretty substantially. As a new trader I don't really think I fully understood what risk I was taking. As a moderately experienced trader I have found my risk appetite has gone down significantly. Is risk correlated to experience? Or are there traders that have been around the block so to speak that will accept say a 50% DD or more?

I realize everybody is different but it would be nice to get a snapshot of what others are doing. Are you one of those traders that at 10% DD you are freaking out, or are you one of those traders thats at 65% DD and doesn't even flinch? What are your reasons?

THANKS!
  • #2
  • Jan 21, 2015 3:50am Jan 21, 2015 3:50am
Quoting wyley187
After a couple years of trading and trying different systems looking back at my Myfxbook stats I have discovered that my risk appetite has varied pretty substantially. As a new trader I don't really think I fully understood what risk I was taking. As a moderately experienced trader I have found my risk appetite has gone down significantly. Is risk correlated to experience? Or are there traders that have been around the block so to speak that will accept say a 50% DD or more? I realize everybody is different but it would be nice to get a snapshot...
An amount that you can afford to lose.
Make your losses in demo. Earn your profits live.
  • #3
  • Jan 21, 2015 4:42am Jan 21, 2015 4:42am
Since 2010 I started to save %10 of my monthly salary to put it into my primary forex account, risking %25 (100 pips move) per week aiming for 100 pips. so compounding it to earn %65(of my salary) every an each month.
Drawdown is not the matter, it's
Quoting Forexia
{quote} An amount that you can afford to lose.
  • #4
  • Jan 21, 2015 3:03pm Jan 21, 2015 3:03pm
Everyone is different. I was a bigger risk taker when I was younger and first started trading. Now I feel that a 30-40% drawdown is a lot. For emotional and psychological reasons, if an account falls below 60-75%, it's an uphill battle to get it back up and very discouraging mentally. There's all that pressure and stress just to breakeven and the amount of time it takes. People say that losing money feels worse than making money and gaining a profit so capital preservation is very important.

Plus, the more money you lose, the bigger % you need to make just to break even and with less capital so it's 2-3x as difficult.
  • #5
  • Jan 21, 2015 9:50pm Jan 21, 2015 9:50pm
Personally, I hate anything beyond 10%-15%. That is mainly because it is telling me either my position sizes are off, or I am utilizing poor money management. Typically, I like to only risk 1.5%-2.5% of my capital per trade, so if I am at a 15% draw down, I have either taken too many poor trades, or took on more risk than I should have, both of which are a no bueno.
  • #6
  • Jan 21, 2015 11:26pm Jan 21, 2015 11:26pm
Quoting PlinyYounger
Personally, I hate anything beyond 10%-15%. That is mainly because it is telling me either my position sizes are off, or I am utilizing poor money management. Typically, I like to only risk 1.5%-2.5% of my capital per trade, so if I am at a 15% draw down, I have either taken too many poor trades, or took on more risk than I should have, both of which are a no bueno.
Agree.
  • #7
  • Jan 23, 2015 8:44am Jan 23, 2015 8:44am
Quoting wyley187
After a couple years of trading and trying different systems looking back at my Myfxbook stats I have discovered that my risk appetite has varied pretty substantially. As a new trader I don't really think I fully understood what risk I was taking. As a moderately experienced trader I have found my risk appetite has gone down significantly. Is risk correlated to experience? Or are there traders that have been around the block so to speak that will accept say a 50% DD or more? I realize everybody is different but it would be nice to get a snapshot...
Forexia said "An amount you can afford to lose" which is pretty good answer taking into consideration that every trader has a different account size and psychology.

I have a very small drawdown, and not because I could not afford at this time to accept 5% or 10%, but because my trading style allowed me to pin point the best trades most of the time and I do not have a large losing streak number.
When I began trading a few years back, I had around 20% drawdown and I realized that is not a very good way to compound my income, of course talking about my trading style at that time. Probably there are traders that have a 50% drawdown (multiple losing trades in a row) and after they hit the jackpot with a nice trend trade , they recover the 50% and then some. Not for me. I prefer steady winning trades, small or big alike with jus a few losing trades. I have trades with +5 pips and trades with +50 pips.
  • #8
  • Jan 23, 2015 12:43pm Jan 23, 2015 12:43pm
I've almost finished reading Hedge Fund Market Wizards by Jack Schwager where he interviews the worlds top hedge fund managers.

What is interesting, is that the majority of traders who reveal their audited results do not tolerate DD's over 10%. It's been fairly consistent in each interview!

Quoting PlinyYounger
Personally, I hate anything beyond 10%-15%. That is mainly because it is telling me either my position sizes are off, or I am utilizing poor money management. Typically, I like to only risk 1.5%-2.5% of my capital per trade, so if I am at a 15% draw down, I have either taken too many poor trades, or took on more risk than I should have, both of which are a no bueno.
I could not have said it better myself!!

I prefer keeping DD's from peak-to-trough down to single digits.
Follow me on twitter @FxLester
  • #9
  • Jan 23, 2015 1:08pm Jan 23, 2015 1:08pm
I think that as your account size gets bigger than you're less willing to handle bigger drawdowns but for the little guys/girls with small account sizes, then they need to risk a bit more in order to grow their account and to be able to take out profits. So I can understand and sympathize with those people who have $500-1000 and take on a lot of risk because if you do it the slow way, it's difficult to make much and it'll take years (which most people don't have the patience for).

So for account sizes of less than $10,000... 20-30% of a drawdown is more common.
But if you have $100,000 etc, then it's not necessary to risk that much. So everything is relative. And obviously for the professionals that manage other people's money in the millions, a huge drawdown is a no no because people will be withdrawing their money left and right after a big drawdown.
  • #10
  • Jan 23, 2015 4:29pm Jan 23, 2015 4:29pm
Quoting PlinyYounger
Personally, I hate anything beyond 10%-15%. That is mainly because it is telling me either my position sizes are off, or I am utilizing poor money management. Typically, I like to only risk 1.5%-2.5% of my capital per trade, so if I am at a 15% draw down, I have either taken too many poor trades, or took on more risk than I should have, both of which are a no bueno.
I think this is spot on for me, I normally risk 2-3% depending on setup/fundies...I will partially close some of the position if I get to 20%, I used the no stop loss model for awhile and although all my trades did come back, I had capital tied up for months that I could have used to be trading. so now I just prefer to take the loss.
  • #11
  • Jan 23, 2015 4:40pm Jan 23, 2015 4:40pm
10% max. i always use the smaller timeframes, to find the ultimate trigger!
MY SITTING, NEVER MY THINKING!
  • #12
  • Jan 26, 2015 7:42pm Jan 26, 2015 7:42pm
Quoting wyley187
{quote} I think this is spot on for me, I normally risk 2-3% depending on setup/fundies...I will partially close some of the position if I get to 20%, I used the no stop loss model for awhile and although all my trades did come back, I had capital tied up for months that I could have used to be trading. so now I just prefer to take the loss.
i might have an answer to your question, wyley.
imagine that instead of trading your account, you're managing a partnership.
let's say you trade your family money. they trust you, right? they trust you not to fk up.
so based on this, what's the % you'd be comfortable to tell them you've lost in any given month?
i feel ok with a drawdown as big as 50%. but that's not all that i have or trade.
5% in a single month would be devastating on my overall investments.
psychological risk is always underestimated. you're blowing up your self-esteem, not only your account.
also, one cannot analyze accurately the magnitude of a drawdown without knowing one's edge (how profitable is your system, what's aver w/l?)
  • #13
  • Jan 27, 2015 1:20am Jan 27, 2015 1:20am
Before making contract of fund management, it is reasonable to ask for risk management plan from fund manager. If both sides come to agreement, then excessive psychological pressure is cut fine.
It all about how much profits your are hunting to. 10%, 20% 100%. Interesting enough, are there any investors willing to invest in gamblers/binary option traders..
  • #14
  • Mar 18, 2016 7:18pm Mar 18, 2016 7:18pm
What you can afford to lose is GOOD SUBJECT, preserve 10% of your monthly income, and deposit, keeps u on the move, but make sure you have a plan in place!
  • #15
  • Last Post: Mar 19, 2016 12:10am Mar 19, 2016 12:10am
I think the most acceptable draw down would be 30%, anymore than that is simply due to irresponsible trading.
Sometimes it takes a whole tankful of fuel before you can think straight.
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