The Max DD is a very important element in managing a Forex account and of course the risk inherent to it. It tells us what was the worst string of losses was taken into a period of time. Ideally, the Max DD is as low as possible. However, it should be noted that the strategies created to achieve profits in the short term, are also exposed to losses, which means your maximum DD could be relatively high. All trading systems have their risk of loss and sometimes have several losses in a short period of time. It then needs some kind of measure that applies to any system to get an idea of how far the funds invested may decrease when a series of losses occur.
This drawdown is: the degree of loss between the maximum value of the funds and the lowest point after a bad streak. Drawdown Utility is a useful measure of risk, and it is clear that depending on the amount of risk the investor is willing to assume each operation, knowing this value will help keep the commercial risk within the limits for the funds can not be eliminated when things go against us. Can be regarded as the worst case scenario based on past results. If the current loss is more than what you have on deposit with the broker house, this will ask for more money (issue a margin call) or close the position. How to calculate the drawdown If the system does not say exactly what your self then drawdown will have to address it. The best way is to run the system for a considerable period in a demo account. This is always a wise plan when testing a new system. Demo accounts allow us to implement a currency trading system in real time, but with virtual money, that is safe and this allows us to approve our investment strategies and systems. Applying a real-time system without risks, we have an idea of how far we could get with our system, whether we win like lose, although EYE is also known that is not the same demo that operate in the real system, since the emotional charge is completely different in each of these scenarios. Either way, parameters and variables have to give us guidelines for our investment will always help to increase efficiency in our operations. More in our next installment Edmar Vieira Director of Investing in Forex