Best followers, learning people, newbies etc ..
My name is Albert , AKA FX pendulum.
On a special request from our members. I am willing to offer a special thread with some education threads in it.
It has nothing to do with market analyzed.. but in this thread i am trying to learn the people to fish.
After i am back from Africa, i am willing to make more education posts with more capitals regarding market analyzing and market know hows.
Lesson 1: Floating Drawdown VS realized drawdowns
It is very important to manage you're floating drawdowns properly, due the fact you're already into a loosing trade.
Now it depends on the one side what equity you have, and on the other side, what gainings you have already made on previous trades which where calculated with this drawdown. Now were not talking anymore of a floating drawdown .. but the equity drawdown or realized drawdown.
I am going to explain this properly through my strategy:
In my strategy i have cutoff @ -15% realized drawdown.
Which mean.. if the equity comes to -15% of 5.000$ ( equity before opening basket ) i cut off !
Which mean there is a realized drawdown of -750$ ( 5000$/100%*15% = 750$ )
I will explain this in detail:
Lets say that i start with 5.000$ equity account.
I am opening a trade, which we call the entry of a new basket . ( a basket is a bunch of trades, which creates 1 position on total )
The basket is closed when every single trade within this basket ,- so from entry point -; has been closed.
I am trading 5.000$ and i traded my up to 10 trades already. Which mean i have running a floating Drawdown of ,('' lets say -10% to make it easy under stable '')
But this is not my realized drawdown. Before i have traded my way up.. within the same basket . I have already made 8%.
Now the big question is : What is now exactly my Drawdown IF I would close right now with the open floating DD.
Well a lot of people would say, you're realized drawdown is -2% ( -10% + 8% = -2% ) Well i can tell you guys, this is NOT Treu !
Well, this is simply math:
i started with 5.000$, I have made already 8% which is 5.000/100%*8%= 400$
Which mean. my balance is right now 5.400$ right ? ( 5000$ + 8% ( 400$) = 5.400$
Okay so far so good.. but FX pendulum's strategy has still open a -10% floating.
So what is now my realized DD..
Well the floating DD is always calculated on the balance. Which mean the balance is right now 5.400$ and 10% of 5.400 = 540$ ( 5.400/100%*10%=540$)
So far so good ? Ok, lets move on:
we have a open floating of -10% which is in this case -540$
We started with 5.000$ on balance and equity.. now we have a 5.400$ balance and the equity is :
Well you're guess is right : 5.400$ - 540$ = 4.860$
So my Balance is : 5.400$
and my equity is : 4.860$
Realized profit is :400$
Unrealized profit ( or drawdown ) : -540$
Starting BALANCE And equity : 5.000$
Which mean in this case, were are down : 5.000$ - 4.860$ = 140$.
And guess what is now the realized drawdown if i would close it right now ?
Well that would be : 4860$/5000$*100% = 97.2%
Which mean 4.860$ is only 97.2% of starting equity.
Which mean were down:
(100% = 5.000% ----- 97.2%= 4.860$)
Which mean you're realized drawdown is in this case not -10% + 8% = -2%