Controlling Equity Swings & DrawdownsKnow Your Comfort Level

Equity Swing is a fluctuation in the value of an asset or account. This term commonly refers to a situation in which the price of an account experiences a significant change over a short period. Whether its up or down the control of these swings is key to capital preservation and must be mastered by the trader in order to have complete control of their account and market movements.


Draw Down
The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the trough.


Controlling your equity swings or draw down is the most important skill a trader must understand to survive the unknown market moves that will occur. To be an effective trader one must “manage the doubt” correctly on every entry into the market. This is done simply by using the proper lots sizes based on account value to be in position to tolerate move of market without created stress on account.


A Zero Line
is typically associated with the opening account balance line or technical indicator. The Zero Line separates positive and negative values within the oscillator.


Maintaining ZERO LINE control is what everyone should strive to do while trading. The opening balance of your account is the zero line when trading. Ideally if your account is never below zero line means its always in a profitable position and you’re a great trader.

When you choose to run system and want to control your risk it’s the LOT Size which will be the determining factor to your equity swings. Account Value in example above had an equity swing below zero ling than had an accelerated move above to a whole new level. This is what you want to accomplish while trading. The hardest time to control zero line is with a new account because in short term of trading the system may cause a drawdown below zero line until trades start taking profits and building equity to clear zero line.

Draw Downs on account are similar because they will be created while market is trading and when your stress will be at the highest. The way to control this emotion is by running system and have a pre-determined risk/reward ratio which the system already has build into it when entering market. Every time the system enters market it will set the stops and targets so its up to you to set the proper lots sizes so you know what to expect on every entry.

Above is an example of a trader running the multi30 and you can see she has it above zero line since last October and growing. This is a perfect example because the equity swings are keep with in 10% and the chart has upward movement on a very consistent basis.

Lot Sizes vs. Equity Swings or Draw Downs

Example of Risk $10,000 Account

Conservative:
Micro Lot:  0.01 Leverage; .1:1 or $1000 traded against $10,000 Pip Value .10. Every 100 pip move is $10 or a .01% equity swing or draw down.

 

Moderate:
Mini Lot:  0.10 Leverage; 1:1 or $10,000 traded against $10,000 Pip Value: $1.00. Every 100 pip move is $100 or 1% equity swing or drawdown.

 

Aggressive:
Standard Lot: 1.00 Leverage; 10:1 or $100,000 traded against $10,000   Pip Value: $10.00. Every 100 pip move is $1000 or 10% equity swing or drawdown.

If your aggressive and want to take risk just increase lot size with a profitable account. That is your best chance to “Hit the Market” because it’s always less stressful to use the market’s money to take risk than using your own money making it much easier to tolerate.

 

Questions Just Ask:

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