EDUCATION WHAT IS DRAWDOWN | 3 Types Of Drawdown Explained
Hey traders ,
is it drawdown . The account drawdown is the highest observed loss from the highest value of the deposit to the lowest value of the deposit at a certain period of time . Imagine you started to trade with 10,000 $ account . At the end of the year , your account size reached 15,000 $ . 1 However , at some point through the year the deposit value dropped to 6,000 $ . It was the absolute minimum for the one - year period . At some point , your net loss was -4,000 $ or 40 % of your account balance . The account drawdown is 40 % .
! Knowing the account drawdown is very important for the risk assessment of the trading strategy . Usually , 50 % and bigger drawdown signifies an extremely high risk .
There are 3 types of drawdown to know
Current drawdown - a temporary drawdown associated with the negative total value of opened trading position ( s ) at present . Once you start trading with 10,000 $ deposit , you open several trading positions . Being opened , with the constant price movements , your potential gains fluctuates from positive to negative . For examples , with 3 active trades : EURUSD ( -500 $ at present ) ; GBPUSD ( + 200 $ at present ) ; GOLD ( -100 $ at present ) your current account drawdown is -400 $ or 4 % of your deposit . Fixed drawdown - the negative value of the closed trading position ( s ) at present for a certain period of time . While some of your trades remain active , some are already closed . Imagine the same deposit - 10,000 $ . On Monday you opened 6 trades , 2 still remain active and 4 are already closed . Your total loss from your closed trades is -500 $ . Your fixed Monday's drawdown is 5 % . Maximum Drawdown - the maximum observed loss from
is it drawdown . The account drawdown is the highest observed loss from the highest value of the deposit to the lowest value of the deposit at a certain period of time . Imagine you started to trade with 10,000 $ account . At the end of the year , your account size reached 15,000 $ . 1 However , at some point through the year the deposit value dropped to 6,000 $ . It was the absolute minimum for the one - year period . At some point , your net loss was -4,000 $ or 40 % of your account balance . The account drawdown is 40 % .
! Knowing the account drawdown is very important for the risk assessment of the trading strategy . Usually , 50 % and bigger drawdown signifies an extremely high risk .
There are 3 types of drawdown to know
Current drawdown - a temporary drawdown associated with the negative total value of opened trading position ( s ) at present . Once you start trading with 10,000 $ deposit , you open several trading positions . Being opened , with the constant price movements , your potential gains fluctuates from positive to negative . For examples , with 3 active trades : EURUSD ( -500 $ at present ) ; GBPUSD ( + 200 $ at present ) ; GOLD ( -100 $ at present ) your current account drawdown is -400 $ or 4 % of your deposit . Fixed drawdown - the negative value of the closed trading position ( s ) at present for a certain period of time . While some of your trades remain active , some are already closed . Imagine the same deposit - 10,000 $ . On Monday you opened 6 trades , 2 still remain active and 4 are already closed . Your total loss from your closed trades is -500 $ . Your fixed Monday's drawdown is 5 % . Maximum Drawdown - the maximum observed loss from