Drawdown and Handling Losses

In back tests you are unlikely to pick up the worst possible scenario and so most times a foreign exchange trading course will counsel at least doubling the drawdown that you find. In this example that would come to 70% so the account would survive. If a run three times as bad happened, our account would be wiped out. Whether things are probably going to be this bad depends on how thorough the back testing was and whether it covered a stable or an unstable period in the market. Clearly the % losses during that bad run are going to rely on how much was lost per trade. Reduce that, either by moving the stop loss or reducing the number or size of lots, and you’ll reduce the losses in the bad run. Naturally you may also reduce profits that way but there’s no point taking massive hazards to make gigantic profits if the result will be that eventually all your profits plus your original investment is wiped out.

So the way to respond to losses is to grasp what should be expected. This currency trading course article helped you do that with the concept of drawdown.