How much is a "high drawdown"?
Jul 05, 2018 at 12:38
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7 Replies
Miembro desde Sep 06, 2013
posts 137
Jul 06, 2018 at 06:37
From an investment point of view you need to aim to keep it less than 5% if possible... returns wise, anything over 10% a year is worthy of consideration but its all about the consistency
HOLY GRAIL: Fundamental Analysis to chose your pairs/direction, Technical Entry/SL/TP for consistent Management of those decisions
Jul 08, 2018 at 13:56
Yeah, DD is very relative. One of my most important metrics is average monthly profit vs max DD. For me a good system has the ratio of 1:3. Basically it means that average monthly profit has to be at least 33% of max DD to be considered as an investment opportunity.
Now, max DD you see on myfxbook is not actual max DD. You have to ask the trader what the worse case DD is and that should be the max DD. For example an account shows 5% monthly profit and 5% max DD so far. If a trader tells you that max allowed DD is 15%, then the ratio is 1:3.
There are a only a handful really good systems on myfxbook so you need to be very careful.
Now, max DD you see on myfxbook is not actual max DD. You have to ask the trader what the worse case DD is and that should be the max DD. For example an account shows 5% monthly profit and 5% max DD so far. If a trader tells you that max allowed DD is 15%, then the ratio is 1:3.
There are a only a handful really good systems on myfxbook so you need to be very careful.
Miembro desde Jan 05, 2016
posts 1189
Jul 08, 2018 at 20:39
Drawdown isn't a data point of primary concern over the long term.
Consider this, if you have a DD of 10% and then one day a trade goes bad, and another and another, and those 3 bad trades go against the account, and you end up with 60% DD because of one day of your trades. But prior to that, you had a great DD.
If we take into consideration when, why, and how the DD occurred, then it's a more realistic analysis of the account.
If however, the strategy being used for trading regularly uses 60% DD against the account, then it's a serious problem for the investor. It means that they aren't using safe money management, and they are probably trading with a higher leverage than they should be.
There is a BIG difference when trading 0.5 lot size on a $100.00 account, and trading 0.5 lot size on a $100,000.00 account.
Consider this, if you have a DD of 10% and then one day a trade goes bad, and another and another, and those 3 bad trades go against the account, and you end up with 60% DD because of one day of your trades. But prior to that, you had a great DD.
If we take into consideration when, why, and how the DD occurred, then it's a more realistic analysis of the account.
If however, the strategy being used for trading regularly uses 60% DD against the account, then it's a serious problem for the investor. It means that they aren't using safe money management, and they are probably trading with a higher leverage than they should be.
There is a BIG difference when trading 0.5 lot size on a $100.00 account, and trading 0.5 lot size on a $100,000.00 account.
If it looks too good to be true, it's probably a scam! Let the buyer beware.
Jul 09, 2018 at 17:32
KovWiz23 posted:Pikasso posted:
Drawdown is relative term. If you make 25% profit annualy, you can't reach 20-30% of DD. 5-8% is your maximum.
Interesting take, so what do you think is a good Drawdown: Profit ratio?
1:3, no less
Trading system developers and strategy providers.
Miembro desde May 18, 2015
posts 118
Jul 10, 2018 at 06:42
Think of it this way... Everyone talks about keeping it under 5% Perfect! However, after the first loss, what is the probability that your next order is in the same direction in less than 48 hours after taking the max loss. All in all you are thus risking much more in the short term because of your bias after your loss. Most people dont adjust their SL after rollover or swap deduces from your account making that 2% or 5% automatically shrink the day after day. Most people don't even follow that simple rule. Risk what you believe you can earn on profit side. 1 to 1 and anything less isnt worth it.
My avatar explains "social trading" perfectly.
Miembro desde Dec 25, 2017
posts 24
Jul 10, 2018 at 10:10
Professional4X posted:
Drawdown isn't a data point of primary concern over the long term.
Consider this, if you have a DD of 10% and then one day a trade goes bad, and another and another, and those 3 bad trades go against the account, and you end up with 60% DD because of one day of your trades. But prior to that, you had a great DD.
If we take into consideration when, why, and how the DD occurred, then it's a more realistic analysis of the account.
If however, the strategy being used for trading regularly uses 60% DD against the account, then it's a serious problem for the investor. It means that they aren't using safe money management, and they are probably trading with a higher leverage than they should be.
There is a BIG difference when trading 0.5 lot size on a $100.00 account, and trading 0.5 lot size on a $100,000.00 account.
Agree! DD shows the worst the level an account has reached, not necessarily how the account is performing.
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