Drawdowns in trading

Trading without losses is impossible. Professional traders know this. And newcomers to the market sometimes treat losses overly emotionally, which only exacerbates the situation. Initially, you need to understand that drawdowns in trading are normal. A trader cannot trade without them. But its task is to reduce the size of drawdowns. This is what the trader should take care of. The fundamental way to solve this problem is to strictly adhere to the rules of money management. Opening trade deals with a large volume will inevitably lead to the loss of the entire deposit. In practice, it has been established that to reduce the risk of large losses, the order volume should not exceed 3-5% of the trading account amount. Every novice trader must learn this rule and follow it. Today I want to talk about the causes ofdrawdowns in trading and give some recommendations.

Reasons for a large drawdown in trading

As I wrote above, trading drawdowns are a natural part of trading. It is impossible to predict price movement with 100% accuracy. Too many factors affect the dynamics of currency pairs. Therefore, any open trade deal can go negative. This is, so to speak, the objective reason for the drawdown. But a trader can increase its size by his own efforts, and this should be avoided. I mean the following actions of the trader.

He can open orders without having a trading strategy with specific rules for entering the market. Spontaneous trading decisions will ultimately lead to large drawdowns and loss of funds.

Any trading strategy requires periodic optimization due to changes in the market. A tight connection to a particular TS can lead to an increase in the size of drawdowns and negative results. The approach to trading should be flexible. Over time, it is necessary to adjust the conditions of the TS and its analysis tools, or even switch to using a different trading system.

The psychological factor can also cause an increase in drawdowns. Influenced by emotions and excitement, a trader seeks to increase the size of trade transactions, contrary to money management rules. And this is a fatal mistake for a deposit. In order to prevent this from happening, a novice trader should pay attention to his psychological state from the first days. Emotions should not become an uncontrollable factor. Discipline will help you cope with psychological stress. It is an important component of successful trading. If you are a disciplined person in life, then it will be easier for you to solve problems in trading. If there is no such quality, then you will have to work on its development.