How much of my account can I lose before I go back to demo trading and review what I am doing wrong.
We have heard from 10% to 35% draw down before you should stop trading and analyze what is happening.
We lean to the 10% area. You will have to decide what is right for you. Keep in mind the preservation
of capital.
Here is a little chart to see what it takes to recoup a loss at different levels.
% Draw down         % Gain required to
Recoup loses
10Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 11.11
20Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 25.00
30Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 42.85
40Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 66.66
50Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 100
60Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 150
70Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 233
80Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 400
90Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 900
100Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Out of Money
Once you reach your draw down level you should close all trades without thinking about it and find out
what you are doing wrong. Here are some things to think about:
Am I following my trading system?
Am I following my trading plan?
What is my state of mind?
How is my physical condition?
What do I need to do to correct the problem?
By following these simple rules of preservation you will be around for another day of trading and not be
emotionally and financially destroyed. We all can have a string of bad trades. The best thing you can
do is step back and give it some time. The most common problem of poor trading results is when a trader
gets away from the trading strategy that was successful for him. By using good money management and
following the trading rules will give you the opportunity to be able to stay in the trading game until you
can figure out what you are doing wrong. By having some rules to follow it is usually quick and easy to
see what is being done wrong. You should be able to spot some rule breaking by looking at just one losing
trade. You should not have to go for long periods of time and many trades to see that you are doing some
things different.