Drawdown in Forex Trading
Previously we have explained what is risk management or we can also call the term business capital loss.
Now the question is what if we don’t use risk management in every forex trading business?
Okay, to answer it let’s look at the following illustration.
If you have a capital of $ 200,000 and have a loss of $ 100,000, what percentage of the loss do you receive?
The answer: 50%
And this is what is called the Drawdown in forex trading!
So the drawdown is a reduction in capital after experiencing losses in one trade as much as x%.
Okay, let’s illustrate with those of you who have the ability to print profits in this business with a 70% chance of all trading positions.
If you open a trading position 10 times with the ability to print 70% chance does not mean you will get a profit of 7 times and Loss of 3 times.
Opportunities to get profit or loss is not always the case at the beginning of trading, in the middle, or at the end of trading but comes randomly!
If your drawdown is very large for every time you trade then you can be sure you cannot increase your chances of making a profit or profit because you have no chance at the next trading.
So, if you use risk loss for every transaction not more than 2% then you will have more opportunities than if you use the risk of 10% loss every time the transaction.
For an illustration, we go to the next page, 🙂 Never risk 2% more trading capital for every trading position that is open.