Drawdown and Handling Losses
If you are losing with forex, you almost certainly wish to have a forex trading course which will turn those losses into profits. Of course this is the aim of any forex trading course, but only in the sense of the bottom line.
No-one can have profitable trades one hundred pc of the time. Even the most perfect trader who never makes a single stupid mistake will have times where the market just does not follow his plan. Then for many of us, we’re not that perfect trader in the 1st place. So a specific amount of losses must be accepted. It is not a matter of losing the losses, but of reducing them in order that they come out to less than the profits.
To do this, it is really important to find out how to lose successfully : in other words, to deal with the inescapable losses in the only way. The best way is just to record the loss on the spreadsheet where you record all your trades, with the trigger, the stop loss that you set, and what happened. Then push on.
There’s no need to investigate it to death at this time. You can look at all your trading at the end of the week or month and see if any patterns are emerging. But aside from that there is no point in getting wired about a loss. It has happened and that’s it.
Simpler said than done, I know. But you can reduce your anxiousness about losses by knowing your system really totally. All systems go through bad instances when they just appear to lose and lose, even when you’re doing everything by the book. You’ll have seen that taking place in back tests, if your back tests were radical.
From those back test results you should be able to prepare a calculation of the drawdown of your system. This is the most that you would expect to lose in a bad run. It’s the low position 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, shall we say that the highest point the account balance would have reached was one thousand points. At the worst point in 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. 350 or 35%.