ACCOUNT DRAWDOWN – HOW TO AVOID IT?
Today I want to touch on a very important topic - account drawdown.
Every trader will face this problem sooner or later, because losses in the forex market are inevitable. And if a professional knows what to do and has experience dealing with such a problem, then beginners often get lost when faced with a drawdown, which leads to even greater losses.
What is a Margin Call?
Margin Call - is a "call"-notification of the broker with a requirement to deposit additional funds to guarantee open transactions.
If no additional funds have been received to the trading account after the Margin Call, and losses continue to grow, then when the price reaches a certain value, the Stop Out procedure will be launched, and the brokerage company will automatically close part, and possibly all transactions on the trading account.
Causes of drawdown.
There are two possible reasons.
The first reason for the drawdown is a bad trading strategy. Each strategy needs to be checked and only then use it. No risk management will help if the strategy is unprofitable.
The second reason is psychology. Even if you have a proven strategy, you can still lose money because you lose control of the situation. Discipline is the key to profitable trading. To act according to the strategy and even after a series of losses to adhere to the plan and not exceed the value of risk management - that's what a professional does and a beginner misses.
Newcomers try to regain what they have lost by opening deals with a large volume, risking even more money, driving themselves into an even greater minus. First of all, you need to put up with losses, it is impossible to avoid them!
Accept losses, do not lose your head, trade further according to the rules and then you will not only return, but also earn even more money.
An important thought!
Every beginner should remember that the more he loses, the more he will need to make profits in the future in order to reach zero. It is very difficult to make 50% of the profit to the capital in one transaction. It is almost impossible to make 100%, but beginners do not understand this and invest a lot of money, open positions with a large volume and lose even more.
Losing 1% is not so scary, losing 10% you need to do 11% already to get to zero. Having lost 50% in the future, you will need to make 100% to go to zero! Don't bring your account to this.
Remember: it's better to move up slowly than to fall down quickly and crash.
Decide on the drawdown level.
Professionals do not let their account fall below reasonable values. A beginner brings his account to exhaustion in two or three transactions. For a beginner, a drawdown of -50% or -70% occurs easily and quickly, a professional cannot afford this.
Each trader must decide for himself how much percent of the capital he can lose and still remain calm. For each person, these values are different, someone cannot survive a 20% drop in the bill, and someone lives quietly with -50%.
Drawdown levels
up to 15% – normal working drawdown.
16-30% is not a reason to panic, but the time is coming to reduce the risks and intensity of trading. And it is also worth reviewing the state, dynamics of the market and the trading instrument.
31 - 60% is the beginning of the end. If the account is down by more than 30%, trading should be stopped and a break should be taken. After that, come back with a modified strategy for making trading decisions.
Drawdown is an unpleasant thing, but the main thing is not to start it and not to delay the time after exiting it.
If you have already fallen into a drawdown, then you need to follow the following rules:
If you use a proven trading strategy that has repeatedly made a profit, then you just need to fix losses and continue trading using the same strategy, but with a more gentle money management system.
If the trading strategy used is no longer effective, then you should fix the losses and look for a new working trading system.
Due to the fact that there are no exceptionally accurate methods to exit the drawdown, your further actions will be reduced to the same trade. In this situation, the trader should identify weaknesses in his strategy and try to eliminate them. The revision of approaches to risk management and funds will also allow you to balance trading and avoid deep drawdowns in the future.
Be disciplined, follow the money management, trade systematically, and the drawdown on the deposit will not bother you.
-------------------
Share your opinion in the comments and support the idea with Like.
Thanks for your support!
Every trader will face this problem sooner or later, because losses in the forex market are inevitable. And if a professional knows what to do and has experience dealing with such a problem, then beginners often get lost when faced with a drawdown, which leads to even greater losses.
What is a Margin Call?
Margin Call - is a "call"-notification of the broker with a requirement to deposit additional funds to guarantee open transactions.
If no additional funds have been received to the trading account after the Margin Call, and losses continue to grow, then when the price reaches a certain value, the Stop Out procedure will be launched, and the brokerage company will automatically close part, and possibly all transactions on the trading account.
Causes of drawdown.
There are two possible reasons.
The first reason for the drawdown is a bad trading strategy. Each strategy needs to be checked and only then use it. No risk management will help if the strategy is unprofitable.
The second reason is psychology. Even if you have a proven strategy, you can still lose money because you lose control of the situation. Discipline is the key to profitable trading. To act according to the strategy and even after a series of losses to adhere to the plan and not exceed the value of risk management - that's what a professional does and a beginner misses.
Newcomers try to regain what they have lost by opening deals with a large volume, risking even more money, driving themselves into an even greater minus. First of all, you need to put up with losses, it is impossible to avoid them!
Accept losses, do not lose your head, trade further according to the rules and then you will not only return, but also earn even more money.
An important thought!
Every beginner should remember that the more he loses, the more he will need to make profits in the future in order to reach zero. It is very difficult to make 50% of the profit to the capital in one transaction. It is almost impossible to make 100%, but beginners do not understand this and invest a lot of money, open positions with a large volume and lose even more.
Losing 1% is not so scary, losing 10% you need to do 11% already to get to zero. Having lost 50% in the future, you will need to make 100% to go to zero! Don't bring your account to this.
Remember: it's better to move up slowly than to fall down quickly and crash.
Decide on the drawdown level.
Professionals do not let their account fall below reasonable values. A beginner brings his account to exhaustion in two or three transactions. For a beginner, a drawdown of -50% or -70% occurs easily and quickly, a professional cannot afford this.
Each trader must decide for himself how much percent of the capital he can lose and still remain calm. For each person, these values are different, someone cannot survive a 20% drop in the bill, and someone lives quietly with -50%.
Drawdown levels
up to 15% – normal working drawdown.
16-30% is not a reason to panic, but the time is coming to reduce the risks and intensity of trading. And it is also worth reviewing the state, dynamics of the market and the trading instrument.
31 - 60% is the beginning of the end. If the account is down by more than 30%, trading should be stopped and a break should be taken. After that, come back with a modified strategy for making trading decisions.
Drawdown is an unpleasant thing, but the main thing is not to start it and not to delay the time after exiting it.
If you have already fallen into a drawdown, then you need to follow the following rules:
If you use a proven trading strategy that has repeatedly made a profit, then you just need to fix losses and continue trading using the same strategy, but with a more gentle money management system.
If the trading strategy used is no longer effective, then you should fix the losses and look for a new working trading system.
Due to the fact that there are no exceptionally accurate methods to exit the drawdown, your further actions will be reduced to the same trade. In this situation, the trader should identify weaknesses in his strategy and try to eliminate them. The revision of approaches to risk management and funds will also allow you to balance trading and avoid deep drawdowns in the future.
Be disciplined, follow the money management, trade systematically, and the drawdown on the deposit will not bother you.
-------------------
Share your opinion in the comments and support the idea with Like.
Thanks for your support!
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