Trade Bitcoin Trading

Draw-Down & Max Draw-down

In a business in order to make a profit a trader must learn and understand how to manage risks. To make profits on trading you need to learn about various btcusd equity management methods discussed on this learn Bitcoin tutorial web site.

In trading, risk to be managed are the potential trading losses. Using money management guidelines will not only protect your account but will also make you profitable over the long-run.

Draw-down

As traders the number one risk is known as draw-down - this is the amount of money you have lost in your cryptocurrency account on a single bitcoin trade.

If you've got $10,000 capital and you accrue a loss in one trade of $500 dollars, then your draw-down is $500 divided by $10,000 which is 5 percentage draw down.

Maximum Draw-down

This is the total amount of money you've lost in your crypto account before you begin making profitable trade transactions. For illustration, if you have $10,000 capital and make 5 consecutive losing trade positions with a sum total of $1,500 loss before making 10 winning trade positions with a total of $4,000 profit. Then the draw down is $1,500 dollars divided by $10,000, which is 15% maximum draw down.

Relative Draw Down & Maximum Draw Down in Bitcoin

Draw-Down is $442.82 (4.40%)

Maximum Draw Down is $1,499.39 (13.56%)

To know how to generate and get above trading reports using MetaTrader 4 platform: Generate Reports on MT4 Lesson Guide

Bitcoin Trade Equity Management

The example illustrated below shows the difference between risking a small percentage of your trading capital in comparison to risking a higher Percentage. Good investment principles requires you as a not to risk more than 2% of your total equity.

% Risk Technique

2% & 10Percent Risk Per Trade Method in Bitcoin Money Management

2 percent & 10 percent Risk Rule

There is a big contrast between risking two % of your equity compared and analyzed to risking 10% of your equity on a single trade transaction.

If you happened to experience a losing streak & lost only 20 trade transactions on a row, you would have gone from a beginning equity balance of $50,000 to having only $6,750 left in your trading account if you risked 10 % on every trade position. You would have lost over 87.50% of your equity.

However, if you risked only 2 % you would have still had $34,055 which is only a 32% loss of your total equity. This is why it's best to use the 2 % risk management strategy

Difference between risking 2% & 10 % is that if you risked 2% you'd still have $34,055 dollars after 20 losing trade transactions.

However, if you risked 10 % you would only have $32,805 after only 5 losing trade positions that's less than what you'd have if you risked only 2 % of your account and lost all 20 trade positions.

The point is you as a trader want to setup your rules so that as when you do get a loss making downtime period, you'll still have enough trading capital to trade the next time.

If you lost 87.50% of your capital you'd have to make 640 % profit to go back to break-even.

As compared and analyzed to if you lost 32% of your trading capital you'd have to make 47 % profit just to go back to break-even. To compare and analyze it with the illustrations 47 % is a lot easier to break-even than 640% is.

Chart below shows what percent you'd have to make to get back to break even if you were to lose a certain percentage of your capital.

Concept of Break-Even

Bitcoin Account Equity and Break Even Strategy

Account Equity & Break Even

At 50% draw down, a trader would have to earn 100% on their capital - a feat accomplished by less than 5% of all traders globally - just to break-even on a account with a 50% loss.

At 80% draw-down, one must quadruple their equity just to bring and take it back to its starting equity. This is what is called to "break-even" i.e. Get back to your original account balance which you deposited.

The greater the you lose, the harder it's to make it back to your initial ==22==trading account size.

This is the reason/explanation why as a btc/usd trader you should do everything you can to PROTECT your equity. Do not accept to lose more than 2 percent of your equity on any 1 single trade position.

Bitcoin risk management is about only risking a small percentage of your capital in each trade transaction so that you can survive your losing streaks & avoid a large draw down on your trading account.

In BTCUSD Cryptocurrency, traders use stop loss cryptocurrency orders which are put in order and so as to minimize losses. Controlling risks it involves putting a stop loss bitcoin order after placing an order.

Effective Risk Management

Effective risk management requires controlling all the risks. One should create a clear bitcoin trading money management system and a trading plan. To be in Bitcoin or in any other biz you must make decisions which involve some risk. All aspects should be measured to keep risk to a minimum and use the above tips on this guide.

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