As we all know, risk management would secure our profits on long term, but what if we putÃÂ riskÃÂ management rules aside and advanced without it?
This is an example:
If you have $10,000 and lost $5,000, this is a 50% loss of your account.
In other words, this is a 50% drawdown.
A drawdown term can be simply understood as the decrease in the starting capital after passing through a series of losses.
It's net value can be calculated as the difference between a relative peak minus a relative drop in the capital and it's usually noted by traders as a percentage of their accounts.
An edge is the what every trader always looks for while trading and its why trading systems are being developed by Forex coders. A Forex system with 70% profits over a reasonable period of time is considered providingÃÂ a very good edge, but this doesn'tÃÂ necessarily mean that it'd win 70ÃÂ trades out of every 100 as we don't know the real 100% total trades count out of which it'd win those 70%, right?
Moreover, ÃÂ if it would be really 70 winningÃÂ trades out of 100 in count, you may also have the 30% (30 trades) loss in a row before winning the remaining 70, a very few traders are capable to stay in game throughoutÃÂ this apparently falseÃÂ predominating loss.
Here it comes, the importanceÃÂ ofÃÂ riskÃÂ management. Whatever the Forex system you are using and how much experienced in Forex trading you are, a losing streak will eventually supervene,ÃÂ professionalsÃÂ yet still end up profitable.
This is as aÃÂ professional trader knows how toÃÂ practice riskÃÂ management and well recognizesÃÂ that he will not win every session he trades, beside that he risks a small percentage of his total capital, so he can surviveÃÂ those losing streaks.
You must do this too in you your trading. Drawdowns areÃÂ an integral part of trading and a trading plan that gives you the ability to withstand those large losses periods is the main key for success in Forex trading, and having risk management rules is a chief part of that trading plan.
Be sure to risk only a smallÃÂ percentage of your total capital to surviveÃÂ ÃÂ your losing streaks and be certain that strict money management rules will make everything under your control and finally you will always be a winner.