Drawdown and Maximum Drawdown Explained - BabyPips.com

One of my favourite ways to enter a trade - what market makers do

Hey Forex. Been a while since I've made an actual post. I still think 90%+ of the posts in here are a toxic wasteland, unfortunately. That being said, I wanted to share one of my entry tips with all of you. This is especially helpful given the dramatic increase in volatility we have seen across the currency markets.
This isn't technical, there's no magic chart pattern or indicator. Rather, it is a concept. From what I've seen posted here, a common struggle is "where and how do I enter the trade?". This is a big question... and it can separate the analysts from the traders. How often have you had a view that xxx/xxx is going up/down and in fact... it does just that? The only problem is, you weren't onboard the trade. You either missed out entirely, or you chased it and bought the high/sold the low.
The title for this post isn't just clickbait, this is in fact what market makers do. I have to emphasize this point once more, this is NOT a technical strategy. It is a different perspective on risk management that the retail crowd is largely unfamiliar with. I'm going to use point form to cover this concept from now on:
Don't (DO NOT DO THESE THINGS):
- Think of your entry as an all-or-nothing proposition
- Think that you must shoot your entire shot all at once
- That there's a perfect point at which you must pull the trigger, and if you miss this point then you miss the trade
Do:
- Split your risk allocation for a specific idea into different parts (for example if you want to risk $100,000 notional value on a USD/JPY trade, split your entry into 4 parts. Maybe that means each tranche is 25k, maybe it means that you go 10k, 20k, 30k, 40k)
- Be a scale down buyer and a scale up seller
- Pick bands in which you want to take action. For example if you think USD/JPY is a buy from 108.5 to 110, then pick a band in which you will be a buyer. Maybe it is between 108.5 and 108. That gives you a lot of room to stack orders (whether these are limits or market orders is up to you). The best case scenario is that all your orders get filled, and you have a fantastic overall average price point. The worst case scenario (other than simply being wrong) is that only your initial order is filled and price starts running away. Remember, you'll always be too light when it is going your way and too heavy when it is going in your face.
- This also works on the way out when you want to exit. You can scale out of the trade, just as you scaled into it.
This takes a lot of pressure off in terms of "sniping" an entry. I hear that term a lot, and it drives me crazy. Unless I'm hedging my options in the spot and I'm scalping for small points here and there, I'm not looking for a "sniper" entry. I'm looking for structural plays. Other hedge funds, banks, central banks, they're not dumping their entire load all at once.
This approach allows you to spread your risk out across a band rather than being pigeonholed into picking a perfect level. It allows you to improve your dollar-cost average with clearly defined risk parameters. Unless you are consistently getting perfect entries with zero drawdown, this method just makes so much sense. The emotional benefit is incredible, as you don't have to worry about the price moving against you. Obviously you pick a stop where your idea is simply wrong, but otherwise this should help you remain (more) relaxed.
submitted by ParallaxFX to Forex [link] [comments]

Need some legitimate risk management advice

Brand new to forex, after messing around with stocks and ETFs for a year on robinhood.
In trying to learn about this strange new world, seemingly every article warns me that trading forex is the fastest route to poverty, that I'll lose every dime I have and that I'm better off buying lottery tickets, UNLESS I have a risk management plan.
That's all good and well, but it seems hard to find suggestions on how to actually manage my risk. So far what I have found is either unconvincing, or I just flat don't understand what is being explained. So I've landed here.
Reading the Forex FAQ, in this sub, the advice is to use a very small amount of capital when starting off, and practice live trading from there. If then recommends a formula to use in order to calculate risk, which seems like quite a bit of running calculations for every single trade that I make. Is it really the case that every Forex Trader that manages risk runs a series of calculations for each and every trade in order to figure out pip value and leverage amount, such matter and what have you?
Second problem, before even getting to the risk management section of this Subs FAQ, I'm told to read The Beginner's Guide on baby Pips. Babypips says that when you first start off trading you should not start small because then you will never be able to weather times of drawdown. They recommend something like an initial deposit of $20,000 or 50,000, and saying that if you don't have that much then build up your savings and come back the Forex when you have that to drop into the market. Are you kidding me?
My original plan before reading either of those guides was to deposit $300 and use something like a 10 to 1 or 20 to 1 Leverage.
The part that I'm hung up on which really baffles me and I need some help understanding is everywhere seems to say that I should only risk one or 2% of my account. I don't really understand what that means.
My trading app, OandA allows me to set default trade settings. One of them is trade size, which I can select an option "%Lev NAV" In all of my general Trading I have kept this number at 100, assuming that it is simply using 100% of my account for each trade.
I am also using a system in order to Define very specific entry points with a one-to-one risk reward ratio, setting a stop loss and take profit Target, usually between 9 and 60 Pips in size, depending on the instrument. Thus far, each trade that I have won usually amounts to a 3 to 8% change in the demo account value, which seems comprable to what I was experiencing with stocks and ETFs back on Robinhood. For the last 4 trades I've made, I'm up 15%.
Do I need to adjust this % Lev NAV down to 1% instead of 100? Or do I really need to download a pip value calculator app and make a determination after solving some arithmetic? I just can't seem to figure this out, and different sources use the same words interchangeably yet differently. When risking 1% of my account, does that include leverage, or not, in the trade? And if the most anyone recommends to risk in a trade is 1-2% then why use leverage at all? Won't the returns on 1% be so small as to be negligible? I don't seem to understand how it could possibly be Worth while to spend all that time trading... 1℅ of $300 is three bucks. As I understand it, that would allow me to buy 2 units of the EUUSD... there's no way that could be right, right?
Thanks for your patience and for reading this whole, chapter-length, question of a post.
I look forward to some clarity. I don't know how to switch to live trading, and the demo account does nothing to simulate leverage.
submitted by rm-rf_iniquity to Forex [link] [comments]

What's your view of copy-trading? Can it be used for a steady income?

EDIT:

I opened 6 €100 copytrading accounts two weeks ago. €20 return so far. But now a drawdown of more than €40. Martingale-alert. More details here: https://www.reddit.com/Forex/comments/8iudxx/whats_your_view_of_copytrading_can_it_be_used_fodz0l2wd/?context=10
I shut it all down except one and plan to invest in classic funds instead.
I want to trade in any case. But trading for a living is hard, e.g. pressure leads to bad decisions.

Theory

Hypothetically:
  • If you pick good traders (and they get some of your resulting winnings, so they have strong incentive not to collapse, cause this will make people leave, and new ones will see the painful dents and not join)
  • and you limit your max. drawdown (auto-pause the copy-trading and send email)
  • and you limit your risk (less growth, but also less loss, thereby more reliably manifesting the upwards-probability of those traders; smoothing the curve but making it less steep)
... you should be able to put a large enough amount of money in, and that's all you need for a steady good income. Any additional money could be used for your own trading. And of course put some aside.

Practice

One week of data - crassly insufficient. But better than nothing.
  • I opened 5 copy-trading investment accounts, €100 each. Like I said above, I defined max drawdown and limited the risk/win to half.
  • After 1 week, these are the results: €+9.62 $+1.15 $-4.17 $+9.61 $-0.26 = $15.95 (Ignoring the higher value of the euro position.)
MORE data is needed. And after a while, I should pick different ones, except for those who were good to me.
$16/$600 (€500) = ~2.7%
There will be better traders. There will be better phases. There will be worse phases, but no total loss of capital as that's absolutely excluded.
So, conservatively speaking: Let's say 2% growth per week. Let's throw $20,000 at this. That's $400 per week. And assuming you're not otherwise naked, that will grow your capital, so your copy-trading income will grow accordingly.
Excessive capital can be used to trade yourself.

Question

What is your position on copy-trading?
Yes, there are scams / fake accounts out there, e.g. non-verified myfxbook.com accounts (Btw., is betrayal still possible even with completely verified/public accounts? How? Can it be avoided?), but there's also legit ones. E.g. I'm with a trading service ("Broker"?) that not only has trading accounts but also copy traders, it's all a closed system, so if the broker is legit, then there's no way that the data based on which I pick those traders is untrue.
So, ignoring the problem of picking legit traders: WHAT is your opinion? Good? Bad? Unconditionally to be avoided because XYZ?
submitted by king_of_the_universe to Forex [link] [comments]

DRAWDOWN IN FOREX TRADING (Risk / Money Management / Behavioural Economics) Was ist ein Drawdown? Einfach erklärt (Trading Definition) Forex Strategies and Secrets: Little or No Draw-down Trades 5 Secrets Of Living Through Drawdowns Forex Trading - What Is Drawdown? - YouTube Is a 50% Drawdown Normal? Definición y Uso del Drawdown en Forex

A drawdown is the reduction of one’s capital after a series of losing trades. ... The key to being a successful forex trader is coming up with trading plan that enables you to withstand these periods of large losses. And part of your trading plan is having risk management rules in place. Only risk a small percentage of your “trading bankroll” so that you can survive your losing streaks ... A drawdown is a peak-to-trough decline during a specific period for an investment, fund, or trading account. Drawdowns help assess risk, compare investments, and are used to monitor trading ... What is drawdown? A DRAWDOWN is a percentage of an account which could be lost in the case when there is a streak of losing trades. It is a measure of the largest loss that a trader's account can expect to have at any given moment or period of time. (Streak of losing trades or a LOSING STREAK - a period of consecutive losses with no profitable trades.) ... Drawdown meaning in forex. Jan 15, · Drawdown in Forex is a fundamental metric that traders use to gage the amount of lost capital incurred from losing trades. Knowledgeable traders use this information in order to calculate how likely their trading systems are to survive over the short and long run. Aug 11, · When it comes to forex trading, drawdown refers to the difference between a high ... This will define how risky your strategy is. This is very important to measure and work on so you’re always aware of what your possible risk is. Thanks to Drawdown, as a trader you develop discipline. It is very easy to lose direction in trading and not be disciplined, because of drawdown you know you have a limit, you will be a more careful and disciplined when trading forex. Drawdown in ... When it comes to forex trading, drawdown refers to the difference between a high point in the balance of your trading account and the next low point of your account's balance. The difference in your balance reflects lost capital due to losing trades. When you lose money on trades, you have what is known as a drawdown. As an example, say that your currency trading account begins with a balance ... Such trends exist almost every day in at least one Forex chart. Trends with drawdown below 10% are very rare, but when they appear, they are gold mines – you can easily achieve a winning percentage above 90%. The lower trend drawdown = the more reliable trend = the greater success rate= the more consistent profit! One more important note: How many bars should we use to define the trend? We ...

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DRAWDOWN IN FOREX TRADING (Risk / Money Management / Behavioural Economics)

This video will help traders understand what drawdown means when trading forex on the markets, it will help you understand your risk while trading. A drawdown is the valley between new equity highson your equity curve, it's as simple as that. So, by definition,you can see a trader will live most of his/her trading career in a drawdown. Some ... Get more information about IG US by visiting their website: https://www.ig.com/us/future-of-forex Get my trading strategies here: www.robbooker.com Check out... El drawdown es un termino quizás poco conocido y poco implementado dentro de un plan de trading, observa el vídeo completo para que lo comprendan. Twiiter Je... Risikohinweis: Handel mit derivativen Produkten wie Futures, Optionen, CFD’s, Forex und Zertifikaten enthält ein erhebliches Risiko. Diese Produkte sind nicht für jeden Anleger geeignet ... Drawdown separates the sustainable traders from the long-term losers. It's as important as your trade-by-trade money management. However, it seems very few t... https://www.forexstrategysecrets.com This is an effective strategy to prevent draw-downs. It uses three time frames but the initial set up is on the 15 min c...

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