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Jul.30,2010Taken from Forex Supersonic
In back tests you are unlikely to pick up the worst possible eventuality and so most times a foreign exchange trading course will recommend at least doubling the drawdown that you find. If a run 3 times as bad happened, our account would be wiped out. Whether things are likely to be this bad relies on how intensive the back testing was and whether it covered a stable or an unstable period in the market. So having done a calculation like this, you may take a different view of what your risk per trade should be. Clearly the percentage losses during that bad run are going to rely on how much was lost per trade. Reduce that, either by moving the stop loss or reducing the number or size of lots, and you may reduce the losses in the bad run. Naturally you will also reduce profits that way but there is no point taking large risks to make enormous profits if the result will be that sooner or later all of your profits plus your original investment is wiped out. It’s better to make smaller profits but keep on profiting and always get over the bad times.
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