Losses in the forest market are inevitable; happens to us all, but what's
the real cost when you lose.
Hello there! Andrew Lockwood here from forexsignals.com. Now, today I want to
talk to you about the real cost of losing in the Forex market. I believe
it's one of the biggest underestimations or traps that many retail Forex traders
fall into is the lack of understanding of what an uncontrolled and losing
period can have on our trading and accounts. moving forward. So what is the
real cost of losing. Well, we all know what losing is all about, that's
basically money going out of the trading account. We've all been there, we've all
had our losses. Highly unlikely that we won't have losses again in the future,
but what I'm offering to today basically is the drawdown and the implications
that a drawdown period can have on the account. As you know, drawdown is
basically the percentage in dollar terms or whatever currency you're using of
course from the highest value to the subsequent lowest value. Basically, from
the peak to the trough. Now, most people don't realize it but the drawdown can do
a lot more damage to the account than you may think
So let's now illustrate this with an example. Let's consider two different
performances on an equity curve. You've got trader A and trader B. Now, both aims
and targets say a 5 percent growth per year for the next ten years. Now we draw
this on a graph. We have the time period on the horizontal axis that basically
out to ten years and; then we have the vertical axis showing us the percentage
gain or growth in that time period. So year on, both hit the target of five
percen. In year two traded B has a bit of a blowout he has a losing period he
has a drawdown now of 24 percent. Now for the following eight years, trader B has
to make double the targeted 5. That's basically 10 percent per year to make up
for one losing year. Just to achieve the same target as trader A which
is, in this case is a gain of 63 percent or there abouts over the 10-year period.
Take a look at this tabl. Now, some pretty stark numbers in here I'm sure
you will agree. If you have a 10% drawdown,
you need to make 11.1% just to get back to break even.If you have a 25% drawdown,
you need to make 33% to get back to where you starte.And look at this
number, as 60% drawdown will require you to make a hundred and fifty percent gain
just to get back to where it all began. Look, drawdown is an integral part of
trading. Everyone's going to go through it but what's important to know is how
you need to perform after the drawdown period to get yourself out of that dip
that the drawdown put you in. If you can appreciate the dangers of being an
out-of-control drawdown you may be more cautious about losing that control in
the first place, and of course, one way to prevent this catastrophic drawdown is to
trade with a smaller percentage risk. Now clearly if you have a back tested
strategy with a positive expectancy, you should have an indication of how the
potential drawdown could affect your equity curve, going forward. Now, if you
liked this video, if it made sense to give me a thumbs up. If you don't like
the video, I'm a big man give me a thumbs down. I can take it. As always leave your
comments have you been in that uncontrolled drawdown; period have you
been chasing a loss just to get back to where it all bega. Yo get your money
back to the break-even level. Leave me your comments. I'd love to hear from you!
Until the next video! Trade safe speak to you soon!