What kind of capital drawdown can be allowed?

capital drawdown

Some speculators believe that 5-10% is a normal drawdown of the account. With a loss of 25-30% of the capital, the trader may fall into despair, which is unacceptable. Therefore, it is necessary to trade so that the drop in funds is moderate.

capital drawdown

If you work with a small lot and have a winning plan, you will be able to break out of small losses and lead your account up. However, we should not forget that the markets may be less positive. Then you can lose more than 10%, but you need to survive this process.

How should I start trading?

First of all, decide where you will trade. Which market is more likely to earn money? In the stock market? Or in the precious metals market? Most traders believe that the currency market is the most dangerous and unpredictable. Sometimes you can earn money there. For example, when the US Federal reserve changes interest rates. But this doesn't happen often.

If you have decided on the markets, now you need to decide on a trading plan. How will you trade? What volumes? Newcomers rush into the market with huge appetites, but lose all their money. Most of them will say that trading is a divorce. In fact, trading is a normal business, but it is not so easy. Any case will not be disputed if you do not make some effort to it. You can't become a doctor, teacher, or machinist without having the necessary knowledge. You also need to learn trading.

How dangerous is it to lose half of your capital in one trade?

Danger of drawdown this is extremely dangerous. It is not recommended to lose more than 5% of the amount of money in a single transaction. Total losses should not be very large, then trading will be fun and effective.
A 5% drawdown is not much. This is the number that most traders adhere to. If you are not trading hundreds of thousands of dollars, but one thousand, then you are unlikely to panic when you lose 50 dollars. You should never panic, because emotions rule the stock market. Negative emotions lead to bankruptcy.

You started trading slowly and confidently, but lost 10% of your total capitalization? You thought it all out, read books, started trading, and again lost 10% of the total amount. And so it went on from day to day? So your business plan is wrong in some way. Try to trade not during the day (such trading is always unprofitable), but for a long time. Buy EUR / USD at $ 1.10 per Euro and wait for a price of $ 1.13 or $ 1.14 per Euro. If the market goes against you, try to overcome the time of losses. Don't average. For example, if the chart fell to 1.05, don't buy the same lot again. You can go again, but the lot is 10 times smaller. This way, you won't be rushing to your financial ruin.

It is better to trade the Dow Jones index, gold, oil, stocks, but not currencies. The currency market is extremely dangerous. You can catch the chart of the currency pair, as they catch a tadpole in a puddle. But the trajectory of this movement will be extremely unclear and poorly predicted. At the most inopportune moment, you will accept losses, and at the right time, you will not accept profits.

Some professional traders average and get away with it. If you still dare to average, then do it very rarely, otherwise you may lose all your money.

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