Draw Down and Maximum Draw Down in Crude Oil Trading

Oil Trade Management Strategies for Day Trading Crude Oil

In any business, in order to make profit a trader must learn how to manage risks. To make profits in oil day trading you need to learn about the various oil money management strategies discussed on this learn oil trading day trading tutorial site.

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

What is DrawDown in Oil Trading?

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

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

What is Maximum Crude Oil Trading Draw Down?

This is the total amount of money you have lost in your oil trade account before you start making profitable crude oil trades. For example if you have $10,000 in oil day capital & make 5 consecutive losing oil trades with a total of $1,500 oil loss before making 10 winning crude oil trades with a total of $4,000 oil profit. Then the oil drawdown is $1,500 divided by $10,000, which is 15% maximum oil draw down.

Oil DrawDown is $442.82 (4.40%)

Maximum Oil DrawDown is $1,499.39 (13.56%)

To learn how to generate the above in oil day trading reports using MetaTrader 4 oil platform: Generate Oil Trading Reports in MT4 Guide - DrawDown Oil Risk Management Chart - DrawDown Oil Risk Management Calculator

Day Trading Oil Risk Management Strategies

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

Oil Percentage Risk Method

2% & 10% Oil Money Management Rule - Day Trading Oil Risk Management Strategies - Oil Trade Management Strategies for Day Trading Oil

There is a big difference between risking 2% of your oil trading account equity compared to risking 10% of your equity on a single oil trade.

If you happened to go through a losing oil streak & lost only 20 crude oil trades in a row, you would have gone from starting oil account balance of $50,000 to having only $6,750 left in your crude oil account if you risked 10 % on each oil trade. You would have lost over 87.50% of your oil trading account equity.

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

Difference between risking 2 % and 10 % on a single oil trade is that if you risked 2 % you would still have $34,055 in your oil account after 20 losing trades.

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

The point is that you want to setup your Day Trading Oil Risk Management Strategies rules so that when you do have a loss making period, you will still have enough in oil day capital to trade next time.

If you lost 87.50% of your in oil day trading capital you would have to make 640% profit to get back to break-even.

As compared to if you lost 32 % of your in oil day capital you would have to make 47% profit to get back to the break-even. To compare it with the oil example 47 % is much easier to break even than 640% is.

The chart below shows what percentage you would have to make in order to get back to break even if you were to lose a certain percentage of your in oil day trading capital.

Concept of Break Even - DrawDown Oil Risk Management Chart

Crude Oil Trading Account Equity and Break Even - Crude Oil Day Risk Management and Crude Oil Trading Money Management Strategies Methods - DrawDown Oil Risk Management Chart

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

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

The more money you lose, the harder it's to make it back to your original oil trading account size.

This is why as a trader you should do everything you can to PROTECT your oil trading account equity. Do not accept to lose more than 2% of your oil account equity on any 1 single oil trade.

Oil Trading Money Management is about only risking a small percent of your oil capital in each oil trade so that you can survive your losing streaks & avoid a big draw-down on your crude oil trading account.

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

Effective Crude Oil Trading Risk Management

Effective in oil day trading risk management requires controlling all the risks in oil day trading & a trader should come up with a money management oil system and a money management in oil day trading plan. To be in oil day trading or any other business you must make decisions involving some risk. All in oil day trading factors should be analyzed to keep risk to a minimum & use the above oil money management tips on this article - DrawDown Oil Trading Risk Management Chart.

Ask yourself? Some Oil Trading Tips

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

2. Do you grade the trading risks encountered by you when in oil day trading in a structured way? - Do you've a money management strategy & a in oil day trading plan? have you read about this learn in oil day trading tutorial which is well covered & discussed here on this learn in oil day web site for beginner traders.

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

4. Are trading decisions made on the basis of reliable and timely oil market data & based on a in oil day strategy or not? Have you read about in oil day trading systems on this learn oil website.

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

6. Over what time periods do the in oil day trading risks of your in oil day trading activities exist? - Do you hold in oil day trades longterm or shortterm? what type of oil trader are you?

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

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

9. Have your oil money management guide-lines been adequately addressed, to ensure that you make & keep your in oil day trading profits.

Crude Oil Day Risk Management and Crude Oil Trading Money Management Strategies Methods - DrawDown Oil Risk Management Chart - DrawDown Oil Risk Management Calculator