![]() If you hit a losing streak, you may be able to cope with several 5% to 10% drawdown losses in a row before you move into an upward swing.īut, if you suffer from a 50% drawdown and experience a significant loss, you will have to achieve a 100% return to simply break even.Īs you can see, that’s a much harder challenge and extremely difficult to achieve.įorex traders monitor their drawdown because it allows them to change their systems and strategies to ensure that they can continue trading. If you continue to experience drawdown as a result of a series of bad trades, your capital will quickly be reduced and you’ll be forced to cease trading. Your drawdown percentage helps you understand how much capital you have and how much longevity your system has. Knowing how to manage this losing streak will determine your overall profitability. Like the stock market, when it comes to forex trading there will always be a time when you hit a losing streak – no trading system can be profitable all the time. Understanding drawdown ensures that you remain profitable for as long as possible. Therefore, if you’re new to forex trading, you want this figure to be as low as possible. It’s about using your understanding of volatile markets to understand the best trading times and knowing how to minimise your losses.Īs we’ve just explained, the drawdown represents the amount of money you have lost as a percentage. Why Is Drawdown Monitored by Forex Traders?įorex trading is all about risk management. This indicates a 10% drawdown – even if your capital balance rises again. You may start at £10,000 in your account.Īfter a bad trade, the balance in your account may drop to £9,000. The calculation is the difference between a relative high in your capital minus a relative low. It takes the high point (either the amount of money that you start with or the amount of money that you’ve earnt in profit) and the low point of your account balance (perhaps you’ve lost money in a trade) and expresses the difference between them as a percentage. Simply put, drawdown is about understanding how much money you may have lost as a result of forex trades. This article will explore drawdown: the difference between the winning and losing trades in your account. ![]() Investing in forex will inevitably come with profits as well as losses. ![]() Similar to stocks and shares, forex trading is about understanding market forces to tell you when it’s a good time to invest your money. Forex trading is all about converting currencies from one to another to make a profit. ![]()
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