Anticipate Drawdown
Written by Hidden Money on 10:30 AMThe opportunity this time we will discuss about how to survive in a market where trading system to swallow the possibility that the largest drawdown expected. Can only be anticipated with the 3 words, reduce your lot.
During the last 2 months, the currency moved in a very high range, which we had never see again since September 11 events (9 / 11). Based on the backtest, we are actually experiencing the biggest drawdown during the period of time in almost 4 years ... but on this fact, we never even met, because the profit was beyond our reach from a loss that is not normal during this period of time.
In general, there are 2 ways that we can prepare to anticipate this risk. First, we set the target at the top of the backtest results that have been doing so far in the drawdown that may arise. Drawdown in backtest until we do not exceed 10% of the initial capital is recommended. How should we prepare? 30%. Why? Since we only have a solid data for 4 years, we have no data market with very high volatilitas equal conditions in 2001. Recognizing that volatilitas the increase may also affect the increased risk, the drawdown should we also have to anticipate added.
A second, make a plan (trading plan) that can reduce the lot size based on the trade level drawdown. For example, when the drawdown rate 5%, we must reduce the lot size up to 80% of the value of our entry beginning trading. When the drawdown value 10%, we must reduce the lot size of 20% more. We will do the same, each time the drawdown increased 5%. So, if the drawdown value of 25%, we will only be trading as much as 1 / 3 of the lot when we first entry before the drawdown occurred.
In other words, if we hit 30% drawdown, with no one the same size lot, then 30% is equivalent to 60% drawdown or 6 times greater than the maximum drawdown suffered during the backtest.
With plans like this, we put ourselves to be able to take advantage of every opportunity, volatilitas survive from the very high, with a fixed limit the risk of the account of our 30% (worst scenario).
Many trader with a trading value of the lot as possible, and then exposed to a high drawdown causing panic, and eventually cease trading within 3 months since you first started. "No plan, and no back up plan". Is concerned that the risk was there. . . This is what we call the plan a failure, because without a plan (plan) is mature, we are planning the same failure.
If you still want to survive in this business, any system you have, try to set the lot number of your system when the drawdown.
However, there is also the thought that when the system experienced a drawdown, it should not reduce the value of lot, but otherwise, add value to your lot entry.
During the last 2 months, the currency moved in a very high range, which we had never see again since September 11 events (9 / 11). Based on the backtest, we are actually experiencing the biggest drawdown during the period of time in almost 4 years ... but on this fact, we never even met, because the profit was beyond our reach from a loss that is not normal during this period of time.
In general, there are 2 ways that we can prepare to anticipate this risk. First, we set the target at the top of the backtest results that have been doing so far in the drawdown that may arise. Drawdown in backtest until we do not exceed 10% of the initial capital is recommended. How should we prepare? 30%. Why? Since we only have a solid data for 4 years, we have no data market with very high volatilitas equal conditions in 2001. Recognizing that volatilitas the increase may also affect the increased risk, the drawdown should we also have to anticipate added.
A second, make a plan (trading plan) that can reduce the lot size based on the trade level drawdown. For example, when the drawdown rate 5%, we must reduce the lot size up to 80% of the value of our entry beginning trading. When the drawdown value 10%, we must reduce the lot size of 20% more. We will do the same, each time the drawdown increased 5%. So, if the drawdown value of 25%, we will only be trading as much as 1 / 3 of the lot when we first entry before the drawdown occurred.
In other words, if we hit 30% drawdown, with no one the same size lot, then 30% is equivalent to 60% drawdown or 6 times greater than the maximum drawdown suffered during the backtest.
With plans like this, we put ourselves to be able to take advantage of every opportunity, volatilitas survive from the very high, with a fixed limit the risk of the account of our 30% (worst scenario).
Many trader with a trading value of the lot as possible, and then exposed to a high drawdown causing panic, and eventually cease trading within 3 months since you first started. "No plan, and no back up plan". Is concerned that the risk was there. . . This is what we call the plan a failure, because without a plan (plan) is mature, we are planning the same failure.
If you still want to survive in this business, any system you have, try to set the lot number of your system when the drawdown.
However, there is also the thought that when the system experienced a drawdown, it should not reduce the value of lot, but otherwise, add value to your lot entry.
