A Maximum Drawdown Prevention Calculator is one of the most important tools in a Forex trader's toolbox. It allows you to calculate exactly how much to risk per trade, in order to avoid a percentage drawdown that would freak you out.
In order to calculate this number, you need to have the statistics for your trading strategy, either in live trading or in backtesting. Watch the video above to learn how to use the Drawdown Calculator, then start using it below.
- Win Rate (%): This is your win rate in your backtesting or live/demo trading. Divide the number of winning trades over the total number of trades taken. It helps to have at least 30 trades, to get more accurate results.
- Avg $ Win/Avg $ Loss: Average the dollar amount (or whatever currency you are using) of all of your winners and divide that number by the average dollar amount of all your losing trades.
- Risk Per Trade (%): What percentage of your account do you risk on each trade. This assumes that you risk the same amount of your account on each trade.
- Number of Trades: This is the number of trades that you plan to take. For example, if you want to find out your probability of hitting your maximum drawdown in one year, enter the approximate number of trades that you would take in one year, using this trading system.
- Max Drawdown (%): This is the maximum drawdown that you are willing to endure.
- Probability of Drawdown: The probability that you will hit your maximum drawdown, give the parameters you entered above.