Drawdown Calculator
A drawdown calculator in forex is a tool that helps traders estimate the maximum percentage decline in their trading account from peak to trough during a specific period.
How to use the Calculator
To use the Drawdown Calculator simply enter the starting balance, the number of consecutive losses and the loss per trade (in percent) to calculate the expected drawdown
What exactly is Drawdown?
When determining the level of risk associated with a trading system, drawdown is one of the most important aspects to consider. You may often hear the expression “there is no benefit without risk,” but the question is, how much of a risk is too much?
With the help of a drawdown value, you will be able to immediately determine the level of risk that the investment has acquired.
Drawdown refers to the percentage or monetary worth that has decreased by the most from its peak (the greatest point) to its valley (the lowest point).
For instance, if an investment has a drawdown of 50%, this indicates that there was either a realized or non-realized loss of 50% of the value of the investment at some point in time.
How To Calculate Drawdown
To calculate drawdown in forex, you need to follow these steps:
Determine the highest equity value in your trading account history.
Identify the lowest equity value after the highest equity value.
Calculate the percentage drawdown as follows:
Drawdown = (Highest Equity Value – Lowest Equity Value) / Highest Equity Value x 100%
For example, if your highest account equity was $10,000 and your lowest account equity was $7,000, your drawdown would be:
Drawdown = ($10,000 – $7,000) / $10,000 x 100% = 30%
This means that your trading account experienced a 30% drawdown from its peak value to its lowest point before recovering.
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