Drawdown is a measure of how far your account falls from the last account high to the low before you get back to the old high again. So, if your account topped out at £1,000 then dipped to £900 before recovering to £1,000 again, you've had a 10% drawdown.
Drawdown can be the source of lots of concern for a newbie trader. They see a minus number at the top of their MT4 app and get really concerned they are about to lose that number. So, I want to put your mind at ease with what I’ve learnt about drawdown and how to have the right mindset around it. I’m not an expert in this but this is my experience I’m sharing with you and if you need more technical information then I’d suggest do your own research around this topic too!
1. Drawdown is part of trading. It will happen every day when trades are set. Its part of the process. When new trades are set you may be lucky, and it jumps right into profit and you hit your target profit straight way, but I’d say 99% of the time drawdown happens first. Its going to be a part of the trading picture going forward.
2. Drawdown means that trades are in play and your money is being actively used to create the money growth activity that you want. If we didn’t set trades or have drawdown we wouldn’t be trading or seeing any profit. If this is not what you want to do then find another income generation method that suits your tolerance levels.
3. I make a note of the dollar at the 10% - 30% drawdown and keep those in my head when I am looking at moving Trade value at the top right of your MT4 app. This helps me roughly know where we are in the drawdown and help you see. For example, my account balance is valued at US$3362. 10% of that is US$336 and 30% is US$1008 so when I look at my MT4 ‘active money’ value I know roughly where I am within these numbers.
4. Drawdown doesn’t equate to losses unless all those trades that are showing loss are closed. They only count if they are closed. When they are in play, I have no problem with seeing the drawdown.
5. Become comfortable with your risk appetite. If you don’t like a lot of risk, then either don’t trade and find another passive income generating method or keep your account small so you are only risking what you can comfortably afford to lose.
If you are manual trader then your drawdown percentages and your risk appetite will be very different, and you will have to create your own risk management plan around your trading plan. There is a lot of wisdom out there on the internet on this.
NOTE: Past results can be verified and if you look in the tab called 'My Results' - you will see my results I have been sharing. Past performance is not indicative of future results. If you are interested in registering or getting more information on this trading system, please message me.
The images below show how the active trade values can vary in a timeframe. The first image is with around 14% drawdown. The second image is 10% drawdown. In an evening the drawdown has reduced and the AUDJPY is trading bearish!. I'm comfortable looking at this. Would you be?
I serve people who want their money to work harder for them instead of it sitting in the bank.