Draw Down and Maximum Draw Down in Oil Trading

Crude Oil Risk Management in Intraday Trading Course

In any business, in order to make profit a trader must learn how to manage risks. To make profits in oil trading you need to learn about the various oil money management strategies discussed on this 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 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 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 trading capital and you make a 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 oil capital and make 5 consecutive losing oil trade positions 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 DrawDown is $442.82 (4.40%)

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

To learn how to generate the above oil trading reports using MetaTrader 4 oil platform: Generate Oil Trading Reports in MetaTrader 4 Tutorial - Oil Trading Position Management Oil Strategies - Risk Management Oil Trading Techniques in Trading Oil

Oil Risk Management in Intraday Trading Guide

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 Risk Management in Intraday Trading PDF 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 Trading Money Management Rule - Oil Risk Management in Intraday Trading Tutorial - Oil Trading Risk & Money Management in Trading Tutorial

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 crude oil 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 Oil Risk Management in Intraday Trading PDF rules so that when you do have a loss making period, you will still have enough oil capital to trade next time.

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

As compared to if you lost 32 % of your oil 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 oil trading capital.

Concept of Break Even - Oil Position Management Strategies

Crude Oil Trading Account Equity and Break Even - What are the Traditional Methods of Oil Trading Risk Management? - Oil Position Management Strategies

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

Effective Crude Oil Trading Risk Management

Effective oil trading risk management requires controlling all the risks in crude oil trading & a trader should come up with a money management oil system and a money 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 money management tips on this article - Oil Position Management Strategies.

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've a money management strategy & a oil trading plan? have you read about this learn oil trading tutorial which is well covered and discussed here on this learn oil website for beginners.

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 information and based on oil strategy or not? Have you read about oil 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 oil trading risks of your oil trading activities exist? - Do you hold oil 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 your oil 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 guidelines been adequately addressed, to ensure that you make & keep your oil trading profits.