Draw Down and Maximum Draw Down in Oil Trading

Proper Oil Trading Risk Management Oil Trading Risk Management Oil Trading Course

In any business, in order to make profit one must learn how to manage risks. To make profits in oil trading you need to learn about the various oil risk management strategies discussed on this best learn oil lesson web-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 crude oil trading trade account but also make you profitable in long run.

What is Draw Down in Oil Trading?

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

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

Oil Trading Draw Down is $442.82 (4.40%)

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

To learn how to generate the above oil trading reports using MT4 oil platform: Generate Oil Trading Reports in MetaTrader 4 Guide - Oil Trading Risk Management in Trading Tutorial - Rules of Risk Management in Oil Trading

Oil Trading DrawDown and Risk Management in Trading Oil Market

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

Oil Percentage Risk Technique

2% & 10% Oil Trading Risk Management Rule - Oil Trading DrawDown and Risk Management in Trading Crude Oil Market - Proper Oil Trading Risk Management Oil Trading Risk Management Oil Trading PDF

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

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 trading account balance of $50,000 to having only $6,750 left in your crude oil trading account if you risked 10 % on each oil trade. You would have lost over 87.50% of your oil trade account equity.

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

Difference between risking 2% & 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 trading account if you risked only 2 % of your crude oil trading account & lost all 20 oil trade transactions.

The point is you want to setup your Oil Trading DrawDown and Risk Management in Trading Crude Oil Market rules so that when you do have a loss making period, you'll still have enough oil trade capital to trade next time.

If you lost 87.50% of your oil trade capital you would have to make 640% profit to get back to breakeven.

As compared to if you lost 32% of your oil trade capital you would have to make 47 % profit to get back to the break-even. To compare it with the oil examples 47% is much easier to breakeven 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 oil trading capital.

Concept of Break Even - Oil Trading Risk Management in Trading PDF

Crude Oil Account Equity & Break Even - Oil Trading Risk Management Strategies for Serious Traders in Oil Trading - Oil Trading Risk Management in Trading PDF

At 50% oil draw down, one would have to earn 100% on their invested oil trade capital - a feat accomplished by less than 5% of all oil traders worldwide - just to breakeven on a oil trading 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 "breakeven" - 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 trading account equity on any 1 single oil trade transaction.

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

In oil trading, traders use oil stoploss orders which are put so as to minimize oil losses. Controlling risks in oil trading involves putting a oil stop loss oil trading order after placing an new oil trade order.

Effective Crude Oil Trading Risk Management

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

Ask yourself? Some Oil Trading Tips

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

2. Do you grade the trading risks encountered by you when oil trading in a structured way? - Do you have a risk management strategy and a oil trading plan? have you read about this learn oil trading tutorial which is well covered & discussed here on this learn oil website for beginners.

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

4. Are trading decisions made on the basis of reliable and timely oil market information and based on oil strategy or not? Have you read about oil systems on this learn oil web site.

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

6. Over what time periods do the oil trading risks of your oil trading activities exist? - Do you hold oil trading trade positions 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 your oil trading risks can be reduced or hedged and what it would cost in terms of profit if you did not 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 risk management rules been adequately addressed, to ensure that you make and keep your oil trading profits.

Oil Trading Risk Management Strategies for Serious Traders in Oil Trading - Oil Trading Risk Management in Trading Tutorial - Rules of Risk Management in Oil Trading