What Drawdown?
Written by Hidden Money on 10:20 AMOften there are traders who expect large profit in a one-time transaction and select a large amount of risk capital in the transaction. But that happens, they lose all the capital and into the wall.
Without the right financial settings, you will not get away with a gambler. Trading business without the financial protection of the right will not be successful in the long term. One of the terms that will be little we know in the financial or Money Management is Drawdown.
For example, your account has $ 100,000 and $ 50,000 loss, then you presentase loss is 50%. Simple is not it?
Next, return to your capital to $ 100,000, how many percent of the burden that must be your responsibility? Are 50%? In fact the truth is 100%. Losses that called drawdown. If you lose 25% of the capital, they said you have 25% drawdown.
The big drawdown, it will be bigger (much bigger) to restore the load. The amount of the burden to restore capital occurred because of factors mengecilnya capital and presentase profit.
If you have a system that can generate 70% profit, not after the deal means that if you are 10 times profit 7 times and 3 times a loss. Your system may use a ratio of 1:3, meaning that 1 times the profit with 3 times the value loss. Thus, when you half loss on the transaction, you can still get more profit from 70%.
How do you know that in 10 transactions, 7 transaction will benefit first and 3 new transaction will be losers. What if 3 times a loss before the rest of the new hit what if 100 of the transaction and the first 30 transactions you losers. Are you Capable of capital to survive a profit on other transactions?
There the importance of money management, namely that you can continue and make a profit.
There may be thinking of you, "I may not have loss 30 times in a row!" Why not? Or do not need 30 times, 10 times on consecutive loss may have made you think back to the trading system you use.
So what the solution? The solution there are several ways:
Solution 1: capital increase
With the capital increase and you have a greater buffer to keep out the loss.
Solution 2: the loss per transaction
This solution is simple and it seems more acceptable. For example, if you meresikokan was 10% of funds for the deal to determine the size of the Stop Loss, then you need to reduce, for example, a 5%.
Solution 3: Risk to Reward Ratio
Risk to reward ratio is a comparison between the risk that you take the profits earned each time a position opens. It's like I give the example above, the ratio of 3:1 for example. So 3 times a loss, can be closed with a 1-time profit.
The trader beginners often only determine the profit target, but not at the Stop Loss. The reason: if the Stop Loss, Stop Loss more often it is so often left out losers.
This is the classic symptoms that occur in almost all beginner trader. In fact, legally valid only for the trading do so in a way. However, from the risk to reward ratio, this is really dangerous, because it limits the risk itself is a Margin Call.
Sources: smart-trading.co.nr
Without the right financial settings, you will not get away with a gambler. Trading business without the financial protection of the right will not be successful in the long term. One of the terms that will be little we know in the financial or Money Management is Drawdown.
For example, your account has $ 100,000 and $ 50,000 loss, then you presentase loss is 50%. Simple is not it?
Next, return to your capital to $ 100,000, how many percent of the burden that must be your responsibility? Are 50%? In fact the truth is 100%. Losses that called drawdown. If you lose 25% of the capital, they said you have 25% drawdown.
The big drawdown, it will be bigger (much bigger) to restore the load. The amount of the burden to restore capital occurred because of factors mengecilnya capital and presentase profit.
If you have a system that can generate 70% profit, not after the deal means that if you are 10 times profit 7 times and 3 times a loss. Your system may use a ratio of 1:3, meaning that 1 times the profit with 3 times the value loss. Thus, when you half loss on the transaction, you can still get more profit from 70%.
How do you know that in 10 transactions, 7 transaction will benefit first and 3 new transaction will be losers. What if 3 times a loss before the rest of the new hit what if 100 of the transaction and the first 30 transactions you losers. Are you Capable of capital to survive a profit on other transactions?
There the importance of money management, namely that you can continue and make a profit.
There may be thinking of you, "I may not have loss 30 times in a row!" Why not? Or do not need 30 times, 10 times on consecutive loss may have made you think back to the trading system you use.
So what the solution? The solution there are several ways:
Solution 1: capital increase
With the capital increase and you have a greater buffer to keep out the loss.
Solution 2: the loss per transaction
This solution is simple and it seems more acceptable. For example, if you meresikokan was 10% of funds for the deal to determine the size of the Stop Loss, then you need to reduce, for example, a 5%.
Solution 3: Risk to Reward Ratio
Risk to reward ratio is a comparison between the risk that you take the profits earned each time a position opens. It's like I give the example above, the ratio of 3:1 for example. So 3 times a loss, can be closed with a 1-time profit.
The trader beginners often only determine the profit target, but not at the Stop Loss. The reason: if the Stop Loss, Stop Loss more often it is so often left out losers.
This is the classic symptoms that occur in almost all beginner trader. In fact, legally valid only for the trading do so in a way. However, from the risk to reward ratio, this is really dangerous, because it limits the risk itself is a Margin Call.
Sources: smart-trading.co.nr
