Middle of the trading week all ready!
I thought I'd take this opportunity to discuss a topic we all fear and we all find ourselves in at some point in our trading journey.
That topic being draw down and your account in a loss of starting capital.
The table I have drawn on the chart shows the amount of gain required to get an account back to break even depending on how big the draw down is on your capital.
Scary stuff when viewed in a simple table format like and hits home just how big of task over turning losses could be.
No trading system or strategy has zero losses or draw down and all strategies endure losing runs.
To avoid excessive losses there is two crucial elements.
Sounds obvious but cut losing trades quickly is the first element, second element is factoring probability into the trading strategy.
Probability helps control risk management which in turns keep losses to a minimum, probability is obtained by carrying out back testing on your strategy.
You can't plan for probability in your risk management if you have no data for your strategy.
The example I am using for this Idea is on AUDCHF H1 timeframe and thanks to our built in strategy tester I can see if I traded this pair in the manner the strategy is set over the last 292 trades at 1% risk I am 22% down on my account. It would not take in the region of a 25% account gain to be back to near break even on my account!!!
You don't need a built in strategy tester to gain this information you can also manually back test a strategy in order to avoid losses and to know if you are entering markets with a proven edge.
A trading edge means your strategy creates bigger wins than losses. Which in turn means you avoid the situation shown in the table.
To avoid hefty draw down don't enter the markets blind with an unproven strategy.
Ensure you have back tested strategies with probability factored in to those strategies that way what is shown in the table wont apply to you then 👍
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Also, see my 'related ideas' below to see more just like this.
The stats for this pair are shown below too.
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