Draw Down and Maximum Draw Down - Day Equity Management and Money Management Strategies

Day Equity Management Strategies - How to Trade Management Strategies

In any business, so as to make a profit a trader must learn how to manage risks. To make profits in intraday Trading you need to learn about the different forex money management strategies discussed on this best learn in day lesson web site.

In forex online trading, risks to be managed are potential losses. Using forex risk management rules won't only protect your trading account but also make you profitable in the long run.

What is Draw Down? - Day Equity Management and Money Management Strategies

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

If you have $10,000 capital and you make a forex loss in a single forex trade of $500, then your forex draw down is $500 divided by $10,000 which is 5 % draw down.

Maximum Forex Draw Down - What is Maximum Forex Draw Down?

This is the total sum of money you've lost in your forex account before you start making profitable forex trades. For example, if you have $10,000 in day trading capital and make five consecutive losing trade transactions with a total of $1,500 loss before making 10 winning trade transactions with a total of $4,000 profit. Then the draw down is $1,500 divided by $10,000, which is 15 % maximum forex draw down.

Forex Draw Down is $442.82 (4.40%)

Maximum Forex Draw Down is $1,499.39 (13.56 percent)

To learn how to generate above in intraday Trading reports using MT4 platform: Generate Forex Reports in MetaTrader 4 Guide - Draw Down Forex Equity Management Chart - Draw Down Forex Equity Management Calculator

FX Equity Management - Day Equity Management Strategies

The in day trading example below shows the difference between risking a small percent of your forex capital compared to risking a higher %. Good Day Trading Forex Money Management Strategies guidelines requires you as the trader not to risk more than 2 % of your total account equity on any one single trade.

Forex Percent Risk Technique

2 percent and 10 percent Forex Money Management Rule - Day Trading Forex Risk Management Strategies

There's a big contrast between risking 2% of your forex account equity compared to risking 10 % of your equity on one forex trade.

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

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

The difference between risking 2% and 10% on one forex trade is that if you risked 2 % you would still have $34,055 in your trading account after 20 losing trades.

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

The point is that you want to setup your Day Trading Forex Money Management Strategies rules so that when you do have a loss making period, you'll still have enough in day trading capital to trade next time.

If you lost 87.5 % of your in day trading capital you'd have to make 640 % profit to get back to break even.

As compared to if you lost 32 percent of your in day trading capital you'd have to make 47 % profit to get back to the break even. To compare it with the examples 47% is much easier to break even than 640 % is.

Chart below shows what percent you would have to make so that you as a trader can get back to break-even if you were to lose a certain percent of your in day trading capital.

Concept of Break-Even - Draw-Down Forex Equity Management Chart

Account Equity & Break Even - Day Trading Equity Management Draw Down Forex Equity Management Chart

At 50% draw down, one would have to earn 100% on their invested capital - a feat accomplished by less than 5% of all traders worldwide - just to breakeven on a account with a 50% loss.

At 80% draw down, one must quadruple their forex equity just to bring it back to its original equity. This is what's known as to "break even" - which means - get back to your original account equity balance which you started with.

The more funds you lose, harder it is to make it back to your original account size.

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

Forex Money management is about only risking a small percent of your forex capital in each trade so that you can survive your losing streaks and avoid a big drawdown on your account.

In day trading, traders use forex stop losses which are put in order to minimize forex losses. Controlling risks in day trading involves putting a forex stop loss order after placing an new order.

Effective FX Risk Management

Effective in intraday Trading risk management requires controlling all the risks in day trading and one should come up with a money management forex system & a equity management in day trading plan. To be in intraday Trading or in any other biz you must make decisions involving some risk. All in day trading factors should be interpreted to keep risk to a minimum and use above forex equity management tips on this article - Draw-Down Forex Risk Management Chart.

Ask yourself? Some Forex Tips

1. Can the risks to your in intraday Trading activities be identified, what forms do they take? and are these clearly understood & planned for in your in intraday Trading plan? All the risks should be taken care of in your in day trading plan.

2. Do you grade the risks encountered by you when in day trading in a structured way? - Do you have a equity management strategy & a in intraday Trading plan? have you read about this learn topic in day trading topic which is well covered discussed here on this learn in day trading web site for beginners.

3. Do you know maximum potential risk of each exposure for each trade that you place?

4. Are trading decisions made on basis of reliable & timely market data & based on in day trading strategy or not? Have you read about in day systems on this learn forex web site.

5. Are the risks big in relation to the trade turnover of your invested capital and what impact could they have on your forex profits margins & your trading account margin requirements?

6. Over what time period do the in intraday Trading risks of your in intraday Trading activities exist? - Do you hold in day trading trades long-term or short-term? what type of trader are you?

7. Are the exposures in trading a one-off or are they recurring?

8. Do you know about techniques in which forex day trading risks can be reduced or hedged & what it would cost in terms of profit if you didn't include these stipulated measures to reduce potential loss, and what impact it would make to any upside of your fx profit?

9. Have your forex equity management guidelines been addressed adequately, to ensure that you make and keep your in intraday profits.

Day Money Management and Money Management Methods - Draw Down Forex Equity Management Chart - Draw Down Forex Equity Management Calculator