Drawdowns

[Richbynature]

Quite often ET posts discuss losses per trade. But this is not really what kills accounts; it is the summation of a number of these over time before the next 'big win'. This is akin to cash flow issues in most businesses which lead to bankruptcy.

My question is simply "How much have you lost as a % of your account in the past and how much have you planned to accept as a loss in the future in the course of your trading". All businesses have ups and downs - how robust are you to the inevitable downs?

This is as much a question about money management and your gearing as anything else.

 

[trader_david]

I once had a big drawdown on BSC, killed 60%+ of my account. I made mistake since I did not realize I already withdrew 80% of my profits in the account, I was forced to take the loss by IB without any notice (exceeding day trading margin). if they did not kill my position, I should make lot. my planned drawdown is $3000, but that day BSC took me almost $27000. It toke me one month to get back that shit big drawdown by my own mistake.

now I learned a lesson, I opened two accounts. if one account is in the blink of margin call, just immeadiately transfered some fund to solve the margin call issue (get a better opportunity to cut loss) or use another account to hedge the risk if I do not want to take the loss immeadaiatly (if I long in one account, short it in another account, vice visa)

 

[polpolik]

I just experienced the worst drawdown so far this year. Incurred a loss of 25k on a 95k account ~ all in the 3 days.

I tell ya, when shit hits the fan, all of a sudden, it's like every trade I do turns into shit. I gotta take it slow, I just need to get my confidence back.

It'll probably take me 2 months just to get back to where I was last week.

 

[Drew07]

I'm a newbie with a relatively small account but I'm down about 85% over the last 2 months. I had about 7 consecutive losing days that accounted for most of the drawdown. It's difficult to accept but I think the only thing you can really do is take a break,evaluate what youre doing wrong and make some changes to your strategy. I think it's a good idea to have a maximum daily loss to prevent catastrophic losses. For example from now on when I'm down $200 on the day I'll shut my platform down. This isn't based on a percentage of the account but I've had green days after being down 1 or 2 hundred but trading after being down anymore can be a recipe for disaster.

 

[NoDoji]

Quote from Drew07:

I'm a newbie with a relatively small account but I'm down about 85% over the last 2 months. I had about 7 consecutive losing days that accounted for most of the drawdown. It's difficult to accept but I think the only thing you can really do is take a break,evaluate what youre doing wrong and make some changes to your strategy. I think it's a good idea to have a maximum daily loss to prevent catastrophic losses. For example from now on when I'm down $200 on the day I'll shut my platform down. This isn't based on a percentage of the account but I've had green days after being down 1 or 2 hundred but trading after being down anymore can be a recipe for disaster.

Definitely pick your max loss and if you can't keep good on a mental stop, place a real one immediately. If a short term trade isn't going your way, take the loss and re-evaluate it. When the market turns against you fast, nothing beats a hard stop. Sometimes the speed of a reversal is downright scary.

 

[cashmoney69]

Question. At what point is an account considered "blown"?..I went from 500 to 30.00 in my fx account. I can still trade but considering the drawndown ive taken on...i think i need to stop for the time being. Did I blow up?

 

[Anekdoten]

Quote from cashmoney69:

Question. At what point is an account considered "blown"?..I went from 500 to 30.00 in my fx account. I can still trade but considering the drawndown ive taken on...i think i need to stop for the time being. Did I blow up?

No, you nuked yourself.

Pretty much bud.

Anek

 

[NoDoji]

Quote from cashmoney69:

Question. At what point is an account considered "blown"?..I went from 500 to 30.00 in my fx account. I can still trade but considering the drawndown ive taken on...i think i need to stop for the time being. Did I blow up?

FROM WIKI: "The foreign exchange market is a zero sum game in which there are many experienced well-capitalized professional traders (e.g. working for banks) who can devote their attention full time to trading. An inexperienced retail trader will have a significant information disadvantage compared to these traders. Retail traders are - almost by definition - undercapitalized. Thus they are subject to the problem of Gambler's Ruin. In a fair game (one with no information advantages) between two players that continues until one trader goes bankrupt, the player with the lower amount of capital has a higher probability of going bankrupt first. Since the retail speculator is effectively playing against the market as a whole - which has nearly infinite capital - he will almost certainly go bankrupt. The retail trader always pays the bid/ask spread which makes his odds of winning less than those of a fair game. Additional costs may include margin interest, or if a spot position is kept open for more than one day the trade may be "resettled" each day, each time costing the full bid/ask spread. Paul Belogour, the Managing Director of a Boston based retail forex trader, was quoted by the Financial Times as saying, "Trading foreign exchange is an excellent way for investors to find out how tough the markets really are. But I say to customers: if this is money you have worked hard for – that you cannot afford to lose – never, never invest in foreign exchange."