How to Keep Drawdown in Forex Under Control



The longer a track record of an investment manager the more likely that maximum drawdown will be significant. The maximum drawdown duration is the longest time between peaks.

Traders ask about:


The third—and best—option is to reduce your risk per trade with each subsequent loss. This guarantees you a soft landing during a drawdown period, rather than a crash and burn experience. Once you regain your confidence, you can start increasing the risk per trade back to its original level. This usually occurs after two to four winning trades. Some months it will feel like the entire market is against you. Just like you set your risk per trade, you can establish a drawdown cap.

I mean, what if you hit that within the second week of the month? Of course, you can always modify a rule like this to better fit your style. Instead of waiting until the next month to begin, you could make it the next week. Either way, this type of rule is incredibly powerful. Not only does it help you avoid the crash and burn scenario, but it also forces you to be more selective about the setups you pursue.

As Forex traders, we have to pick and choose our battles. Sure, we can choose the setups we take, including exit points and the amount we risk, but the price action is out of our hands. When faced with a drawdown situation, most traders feel the need to try harder.

They want to make back what they just lost as fast as possible. But the Forex market has a way of pushing back. The harder you try, the more the market resists. If losses continue to mount even after reducing your risk and perhaps even your trading frequency, just walk away. Spend time with your family or play your favorite sport. Whatever you choose, just make sure to stay away from your charts.

After a few days or even a full week off, come back to your charts. Taking losses is part of trading. Just like any business, expenses need to be controlled. But unlike most, the expenses associated with Forex trading are not on a set schedule. Some months will be great, others mediocre. Then you have months where everything you do goes wrong. Without a defined process in place for how you will handle drawdowns, your emotions are free to run wild.

By doing this, you satisfy the number one rule of being a trader, which is to protect your capital at all times. Tnx Justin i jst wrote down all notes so i kip chcking dem as alwys as possible if i start loosing it. Hi there, when trading the 4 hour chart, what is the best lower timeframe to look at to enter a trade. Justin, first of all i will thank you for your countless assistance for young traders and me.

Good work my friend! Learning price action and having a trading plan can help with discipline and patience to only take the best set ups! Specifically; they may post a 4 hour EURUSD chart, and the candles do NOT match my candles even though we are both using the same chart package, currency pair, time frame etc… What is going on?

Maximum drawdown is the maximum possible loss or loosing streak before you gain some profit. In other words it can be defined as "difference between one of local upper extremums of the balance graph and the following lower extremums". I was also confused abt it. I thought it would be some very difficult mathematical calculation so left it.

But it was so easy. Originally posted by bluevirgin23 test 4first post But it looks so odd to welcome you in a thread of drawdown: Maybe you can introduce yourself by openning a different thread. Originally posted by Bee I will explain these drawdowns with an example. Absolute drawdown cannot be greater than maximum drawdown. It means maximum drawdown should be checked in analyzing someone's performance. I cannot see your drawdown and any other statistics that are below monthly results.

No graph, no statistics, no probability, no pie chart. Have you locked it? The good or ill of a man lies within his own will. Trading foreign exchange "Forex" , Commodity futures, options, CFDs and SpreadBetting on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange "Forex" , Commodity futures, options, CFDs or SpreadBetting you should carefully consider your monetary objectives, level of experience, and risk appetite.

The possibility exists that you could sustain a loss of some or all of your deposited funds and therefore you should not speculate with capital that you cannot afford to lose.

You should be aware of all the risks associated with foreign exchange, Commodity futures, options, CFDs and SpreadBetting trading, and seek advice from an independent advisor if you have any doubts. Past returns are not indicative of future results.