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  • Draw Down the tail of 1 million stories

    Good Morning everyone. I have decided to take sometime to discuss a stat which I hate dearly. "DRAWDOWN".
    Drawdown is a stat which many people use to identify "Risk" taken within an account. It is simply calculated by the % in which your account has been decreased by a closed (red) position. Here is an example.

    Say you have a 1,000usd account. Your first position your losing 100usd, and you decide to close it. Your drawdown is 10%. As a 100usd loss is 10% of your account which you have loss. Of course the higher the number the more of your account you have actually loss.

    Here is where focusing on the DrawDown can lead to manipulation.

    1) Drawdown is not calculated by open positions. (As if to say if I have an open order, and I'm about to margin call. I can simply redeposit and wait for the price to come back to my entry and there will never be any record of what would of been my drawdown)

    2) If a person has profited in his/her account. Withdraws all of his/her profit and even principle. Then decide to only wager with 10usd. If he losses his 10usd. His draw down would then be 99.9%

    3) Hedging is another form of manipulating draw down, as hedging stop the loss by opening another position in the opposite direction.

    I say that to say this. If your going to look into the "draw down" stat. Please look at the draw down in PIPS. Not percentage. As the draw down in pips will reveal to you how accurate his/her system truly is. Anyone who has a stop loss, or running loss of over 50 pips (for the exception of playing the news release spike) has no clue as to what he/she is doing. To lose 50 pips, or allow your position to run for a 50 pip loss means your losing more then 50% of all currency pairs daily range (except for eur/jpy) on one transaction.

    The under line stat which means everything is how much have you profited or loss. Everything else is meant to trap you into investing which isn't good at all.