Drawdown and Handling Losses
April 30th, 2010 | by admin |Article from Zone 99 Forex Review
If you are losing with forex, you almost certainly need a forex trading course which will turn those losses into profits. Even the most perfect trader who never makes a single dumb mistake will have times where the market just does not follow his plan. So a certain amount of losses must be accepted. The best way is just to record the loss on the spreadsheet where you record all of your trades, along with the trigger, the stop loss that you set, and what happened. Then move on . You can look at all your trading at the end of the week or month and see whether any patterns are developing. But aside from that there is no point in getting strung out about a loss. It has happened and that is it. But you can cut back your anxiety about losses by knowing your system very completely. All systems go through bad times when they just appear to lose and lose, even when you’re doing everything by the book. You will have seen that occuring in back tests, if your back tests were thorough. From those back test results you should be able to ready a calculation of the drawdown of your system. This is the most that you would expect to lose during a bad run. It is the lowest point that your funds would reach between two highs, subtracted from the high.
So look for the worst run of losses in the back testing results. Before the bad run, let’s say that the uppermost point the account balance would have reached was 1000 points. At the worst point during the bad run it was down to 650. Then it slowly began to recover, and made it back up to 1000. The drawdown here is the difference between one thousand and 650, i.e.