*Drawdown Explained*

How to get loss/profit in $’s if SL-TP hit of all open orders. Also, Set your Risk: Reward using our plugin?

»So we know that risk management will make us money in the long run, but now we’d like to show you the other side of things.

What would happen if you didn’t use risk management rules?

Consider this example:
Let’s say you have a $100,000 and you lose $50,000. What percentage of your account have you lost?

The answer is 50%.

Simple enough.

This is what traders call a drawdown.

A drawdown is the reduction of one’s capital after a series of losing trades.
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A trading system that is 70% profitable sounds like a very good edge to have. But just because your trading system is 70% profitable, does that mean for every 100 trades you make, you will win 7 out of every 10?

Not necessarily! How do you know which 70 out of those 100 trades will be winners?

The answer is that you don’t. You could lose the first 30 trades in a row and win the remaining 70.
Now you have to ask yourself, “Would you still be in the game if you lost 30 trades in a row?”

This is why risk management is so important

Even professional poker players who make their living through poker go through horrible losing streaks, and yet they still end up profitable.

The reason is that the good poker players practice risk management because they know that they will not win every tournament they play.


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