Controlling Drawdowns in the Forex Market

The secret to being a good trader is to come up with a trading plan that allows you to survive periods of significant loss. The drawdown number highlights the amount of loss that you may suffer when trading your trading strategy. Drawdown is a serious issue when the losses are high in comparison to the funds kept in the account. If you trade in any volatile Forex market, a certain drawdown is unavoidable. It’s one of the risks to put your money in Forex markets.

Losing money is a part of Forex trading, which is fact that everyone must accept. But, of course, experiencing drawdowns is also a part of every business that must accept. Managing a drawdown is really about realizing that you may not be particularly good at trading, or that market conditions may not be favourable to your trading strategy and you may need to lay off a little. In any business, as soon as you understand and accept (self-awareness) the situation, we can’t be perfect and this is fine.

Closing the current positions and taking some time off will not only stop the pain but will also do your psychological wonders. Although the losses remain, this first step will help to bring immediate some relief. It may be hard to do the first time around, you’ll later recognize when to do it faster, and you will thank for having the discipline to walk away and stop battling. This times when harder work is going to work against you.

As a trader, you have to perform a very in-depth analysis of your network even before considering trading it live. You have to identify the maximum depth of historical drawdown, the maximum historical period, maximum SL stop loss, maximum TP profit-taking and the average stop loss, average profit-taking, number of regular losses/win. At least, you should predict the highest historical losses ever made. Sooner or later, Change your risk to the full drawdown which you’re willing to carry. Let suppose: I am able to accept a 5% drawdown, for example, so stop the trades when it hits the 2 to 5% drawdown.

Managing your Forex drawdowns is one of the most important parts of forex trading to avoid losing money in the forex market as you suffered many temporary losses. In the forex market, while there are experts and robots who promise they can do it, there is no device that can guarantee you 100% earnings. One of the best tips is to have a fixed point of SL stop-loss on your trade before you enter. It will limit the amount you can take of any drawdown. Once you’ve entered the trade you will be able to stand back, thinking you’re out of it, with no questions when and if the stop loss is hit.