What is a Forex Drawdown Calculator?
The drawdown calculator stands as an essential risk assessment tool within a trader’s arsenal, acclaimed for its profound significance. Our drawdown calculator encompasses a distinctive feature that enables traders to precisely simulate the optimal percentage of equity to risk per trade.
Employing this calculator serves the dual purpose of guiding traders to steer clear of uncomfortably high drawdown percentages that may jeopardize the account equity, potentially leading to complete loss. As an illustration, even when utilizing a moderate rate of 7% per trade, a string of 10 consecutive losses can deplete over 50% of the account’s initial capital.
We strongly recommend traders to integrate this drawdown calculator with a robust Money Management system or an Account Equity Risk Management plan before initiating any trading position.
How to Use the Forex Drawdown Calculator
1. Starting Balance: Input the trader’s initial account equity, exemplified by 1,000 units of the designated base currency.
2. Consecutive Losses: In this field, traders can simulate a series of x consecutive losing trades. For the purposes of this example, let’s simulate a sequence of 6 consecutive losing trades.
3. Loss % per Trade: The crux of the drawdown calculator! Professional traders abide by the golden rule of not risking more than 2% of the account equity per trade. This proven methodology ensures prolonged trading careers and enables recovery from previous losses. Therefore, let’s utilize a 2% risk per trade for our demonstration.
Once the requisite inputs are provided, click the Calculate button.
The Results: The drawdown calculator swiftly generates the Ending Balance after experiencing 6 consecutive losing trades, along with the Total Loss percentage.
In this scenario, an initial equity of 1,000 units denominated in the account currency diminishes to 885.84 units following 6 consecutive losing trades.
Thus, even with a mere 6 consecutive losing trades (a common occurrence in forex trading) and employing a conservative and recommended 2% risk per trade, the account balance experiences a modest decline of 11.4%.
The results also provide a meticulous breakdown of how each losing trade impacts the account balance, the cumulative percentage loss of each trade, and the final ending account balance.