Drawdown in Bitcoin & Maximum Drawdown in Bitcoin - Money Management in Bitcoin Trading

In a business in order to earn profit one must learn & understand how to manage the risks. To earn and make profits in Bitcoin trading you as a trader need to learn about the different equity management strategies explained on this learn BTC/USD Crypto trading web site.

In BTC USD CryptoCurrency trading, the risk to be managed are the potential trading losses. Using money management rules will not only protect your Bitcoin account but also make you profitable in the longterm.

Draw-down

As Bitcoin traders the number one risk in Bitcoin trading is known as draw-down - this is the sum of money you have lost on your account on one Bitcoin trade.

If you have $50,000 capital & you make a loss in a single transaction of $500 dollars, then your drawdown is $500 divided by $50,000 dollars which is 1 percent draw down.

Max Draw-down

This is the overall total sum of money you as a btc usd trader have lost on your Bitcoin account before you start making profitable positions. For example if you have $50,000 capital & make 5 consecutive losing trading positions with a total of $2,500 dollars loss before making 10 winning positions with a total of $5,000 profit. Then the drawdown is $2,500 dollars divided by $50,000, which is 5 % maximum drawdown.

Bitcoin Drawdown vs Bitcoin Maximum Drawdown - Learn Bitcoin Money Management

Draw Down in the example above is $52.01 (0.53%)

Maximum Draw Down is $52.01 (0.53%)

To know how to generate and get the above trading reports using MT5 platform: You can search on how to generate trading reports on MT5 Tutorials.

Equity Management Methods

The example laid-out below shows the contrast between risking a small percentage of your trade capital compared to risking a higher percentage of you trading capital. Good principles require you as an investor or a trader not to risk more than 2% of your total equity on 1 single BTCUSD trade.

% Risk Method

Bitcoin Drawdown vs Bitcoin Maximum Drawdown - Learn Money Management Guidelines in Crypto Trading

2 percent & 10 percent Risk Rule - Bitcoin Money Management Principles

In trading, there is a big difference between risking 2 percent of your account equity compared & analyzed to risking 10% of your account equity on a single Bitcoin trade.

If you happened to go through a losing streak when trading Bitcoin and lost only 20 trades in a row, you would have gone from beginning balance of $50,000 to having only $6,750 left in your Bitcoin account if you risked 10% on each trade. You would have lost over 87.5% of your Bitcoin equity.

However, if you only risked 2% when placing your Bitcoin trades, even after losing your first 20 trades you'd still have had $34,055 which is only a 32% loss of your total equity.

This is why it's best to use the 2 percent risk management method

The contrast between risking 2% and 10% when trading Bitcoin online is that if you risked 2% per every trade you'd still have $34,055 after 20 losing trades. However, if you risked 10% per trade you would only have $32,805 after only 5 losing trades & that's less than what you'd have had if you risked only 2 % of your trading account and lost all 20 trades.

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

If you lost 87.5% of your account capital you'd have to make 640% profit in your remaining balance just to go back to break-even.

As when compared to if you lost 32% of your trade capital you'd have to make 47% profit in your remaining balance just to go back to break-even. To compare and analyze this with the above example, 47% maximum drawdown is much easier to break-even than 640% maximum draw-down is.

Chart below shows what percentage of your account equity you'd have to make so as to go back to break-even if you were to lose a certain percentage of your Bitcoin capital.

Concept of Break-Even

Bitcoin Drawdown and Maximum Drawdown - What is Money Management in Crypto Trading?

Trading Account Equity and Concept of Break Even

At 50% draw down, a btc/usd trader would have to earn 100% on their remaining capital - a task which is only accomplished by less than 5% of all online traders worldwide - and this is just to break-even on a account with a 50% loss.

At 80% draw down, a trader must quadruple their Bitcoin account equity just to bring and take it to the original equity level. This is what's known as "break even" i.e. Get back to your original account balance that you deposited after making a drawdown.

The more you lose, the harder it's to make it back to your original trading equity.

This is the reason why as a trader you should do everything you as a trader can to PROTECT your trading account equity. Do not accept to lose more than 2 percent of your account equity on any one single Bitcoin trade.

Money management is about only risking a small percentage of your trade capital in each Bitcoin transaction so that you as a trader can survive your losing streaks and avoid a big drawdown on your Bitcoin account.

In BTC USD CryptoCurrency trading, traders use stop loss orders that are placed so as to minimize losses. Controlling risks involves setting a stop loss order after opening a trade order.

Effective Equity Management

Effective risk management requires controlling all the trading risks. A trader should create a clear money management system and a Bitcoin plan. To be in the Bitcoin trading business or in any other type of business you as a trader must make some decisions involving some type of risk. All aspects should be measured to keep risk to a minimum when trading Bitcoin online and make sure you use the above tips when trading Bitcoin Crypto Currency.

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