Trade 1: result: +€10 Maximum latent loss during the range of the trade: -€10 These notions do not really exist but it is important to distinguish the drawdown which includes all maximum latent losses added together (all trades combined), from the drawdown calculated only on final performance (closed trades). The drawdown of a portfolio or a trading account therefore accumulates all the latent performances of the open positions.įinally, it is important to know that traders usually couple their maximum drawdown with the Profit Factor to get a better statistical view.ĭon’t confuse Performance Drawdown and Drawdown Risk The maximum drawdown of a portfolio, or trading account, is the maximum unrealised loss recorded during the entire range of all open trades. The drawdown makes it possible to measure risk, trade by trade. So the trader would have left his trade in loss, and finally cut it in profit. A trade may have been closed with a win/profit, while registering a large drawdown. The maximum drawdown of a position or trade is the maximum unrealized loss recorded during the entire range. The maximum drawdown over a given period is the maximum loss recorded by a trading strategy over that period.ĭrawdown can be calculated as an amount or as a percentage.Įxample: A trader could talk about a drawdown of €150 or 1.5% on his €10,000 trading account. More simply, drawdown measures a trading strategy’s loss, and therefore its risk. Effectively, strong performance on a trading account does not mean that the trading strategy applied is really profitable and without risk. Testimonial Disclosure: Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.Traders generally talk about drawdown or maximum drawdown to judge the quality of their trading and risk management. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. no representation is being made that any account will or is likely to achieve profits or losses similar to those shown in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. Hypothetical Performance Disclosure: Hypothetical performance results have many inherent limitations, some of which are described below. Clients are advised to conclude a thorough study of the requirements of the program before signing up for any of the services. The outcome of the proposed services is necessarily determined by the individual professional skill level and ability to perform under the program guidelines and objectives as elaborated for each service separately. Risk Disclosure: The services provided on this website are professional skill-assessment services.
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