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9th June 2018

What is Drawdown?

I would also like to revisit my points on Drawdown, mainly for new traders.

I’d like to give a very basic description of drawdown. Drawdown is the percentage value that the account is running in the red from the total fund available. I like to view it as an overdraft facility. It is the current negative equity because an OPEN trade or net OPEN trades value is running red.

Please be aware that it is not the same as the profit percentage figure displayed for a PI. If you are running a drawdown and decide to close that trade, then the drawdown becomes zero again, assuming you are running no more trades, but the loss then appears on the profit statistics page. So when choosing a PI or when following the progress of your existing PI, please understand that any negative figure for profit, may not necessarily be a loss.

Please also be aware that drawdown is perfectly normal. When a trade is placed, it rarely

goes initially in the anticipated direction. That is one reason for using a stop loss. I have worked hard at reducing my risk score and as a result I have restrained drawdown below 15%, with a risk of 3 – 5

You need to bear this in mind when setting your stop loss. If a PI is always running a 50% Drawdown, you need a bigger copy stop.

Finally, those with me over a year, 50% of you I think, will know that I am very adept at converting DD back to equity. In fact, I actually prefer the account running red. I just do and it keeps me on the edge and focussed.

Thanks for listening, Wayne

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