About Start Trade Drawdowns

What is start trade drawdown? In summary, it represents your out-of-pocket losses when starting to trade a new system. This is money that comes out of your initial starting capital. We find this type of drawdown to be much more useful when embarking on a new system since this is how much you will be down before you go into the black and start having a net profit in your account. See the chart below.

Sample Trade: Any System, Any Trade

We begin our trade on Week 1 (Point A), and right off the bat, it goes against us. By Week 2 (Point B), our losses have amounted to $3,000, but then things start to turn in our favor. By Week 3 (Point C), we have erased our losses and are actually making an open trade profit here of $2,000. By Week 4 (Point E), however, things have turned against us again, and by the time the trade is closed out we end up with a net loss of $2,000.

• C - E '-$4,000' = Maximum Daily Drawdown
  
  
• D - E '-$2,000' = Closed Trade Drawdown
  
  
• A - B '-$3,000' = Start Trade Drawdown

Maximum Daily Drawdown includes all losses, including reductions of open trade equity, i.e., profits that you had already made and are giving back to the market.

Closed Trade Drawdown only represents the final actual realized loss when the trade is closed.

Start Trade Drawdown is your maximum out-of-pocket losses that you experience at the very worst point during the progression of the trade. When starting to trade a new system, the Start Trade Drawdown will represent the maximum out of pocket losses that you will first suffer through before you finally go on to start making profits. We find this drawdown to be the most useful when starting to trade a new system.