March 14th, 2010

Currency Trading and How to Minimize Drawdown

Posted in Finance

One of the best indicators of a forex trading system is drawdown. It simply indicates the biggest low between 2 highs. In other words, how much was lost between the last win and the subsequent one. Why it’s important is perhaps because it shows how much your system can take without wiping out your account. As an example a drawdown of 30% would lose one third of your account, however 4 consecutive losses would wipe out the entire account. You have got to be cautious about that and know your system well enough to prevent that from taking place. If you see that you have a drawdown too high, you have to take respective measures. As an example, lowering your stop loss to stop high drawdown.