IMPACT OF PROBABILITY AND DRAWDOWNS ON DAY TRADING

As Day traders we are attempting to make only high probability traders. In other words we only want to trade when we believe the odds are in our favor. If we want to take advantage of the probability factor, we should not change our trading strategies depending on profit or loss on individual trades. Whether we make profit or loss if we trade in a systematic and disciplined manner, we will still be in the game till the game till the end until we book profits, even if we incur loss continuously in first few trades.

Now we will understand how probability factor affects our trading by analyzing the individual and weekly results of two weeks in the form of a small statement.

If we compare the results of two weeks, we will find that at the end of every week we got profit in 21 trades and we incurred loss in 9 trades on average out of total 30 trades on every week. Our percentage of success for every week is 70%.

When we compare individual trades, we will find that we incurred loss in all our trades on both Monday and Tuesday in second week. Since we have proceeded with our trading strategy without changing or modifying it even after incurring loss in all trades for two days, again from Wednesday onwards the odds turned in our favor and we finally finished the 2nd week with our regular success rate.

So, it is very very important that if we want to take advantage of the probability factor, we should not change our trading strategies depending on profit or loss on individual trades. Whether we make profit or loss if we trade in a symmetric and disciplined manner, we will still be in the game till the end until we book profits, even if we incur loss continuously in first few trades.

Another important point in this probability analysis is to realize that regardless of the system or method you use to trade there will be occasions when you have losses or even string of losses. When these losses occur, it is important to have faith in your day trading technique and you should not lose faith or you should not change your trading techniques or methods depending on loss or profits you earn on individual trades.

The final point to be made in the above analysis is that as we can see from the above examples, any trading techniques or methods will go through tough times when it has more losses than wins. There is  where money management comes in to play. You should follow strict money management principles which helps you to stay in trading even if you incur losses continuously in all trades for few days. So if you want to take complete advantage probability factor, you should also follow strict money management techniques like following strict stop losses to keep all your losses small and utilizing only little multiple exposure on your margin money depending upon your trading methods etc.,

DRAWDOWN : Drawdown is a frightening word in day trading. But every day trader will experience some drawdown. In day trading, drawdowns are simply unavoidable. We can define drawdowns as the percentage of money we lose from our capital after finishing a trade. For example if you start day trading with a capital of $1500 and a few trades if you lose $300 your draw down would be 20%.

Now let’s say you make more trades and gain $600 which brings you to $1800($1200+$600 = $1800). After this on next trade you lose $300. Now your draw down would be 16.7% (percentage of $300 in $1800). The $1800 was your equity peak as that was the highest point in the period we looked at. Maximum drawdown is the lowest point your account reaches between equity peaks in a given period. For example, if you started your account with $1500 and the lowest amount you had in your account over a six month period was $750, then you had a 50% draw-down. You would need to make $750 from the lowest point in order to get back to break even.

MEASURING DRAW DOWN RECOVERY

Detailed table below shows how much percentage of profit you require to recover a given percentage of drawdown.

Draw-down recovery can confuse many traders. If a trader loses 20% of his account he thinks he needs to make 20% in order to get back to break-even. This is in fact not true. If you started with $1500 and lost $300 (20%), you would need to make 25% in order to get back to break-even. If you calculate $300 as a percentage of $1200 (not the original of $1500) it works out to 25%. As your draw-down increases, the amount you need to make back increases faster. Now you must be aware that following strict money management techniques is as important if not more important than your trading technique or trading system! 

To reduce draw-down in your trading career, you should you should concentrate on two important things. One is following strict risk management techniques and the other is following strict money management techniques.

In risk management, you should follow strict stop loss levels. You should minimize your losses by following strict stops and you should exit from a trade with a small loss if the trade goes against your expectation. If you stop, then you will be able to identify your risk.

In money management, you should not utilize too much multiple exposure on your margin money. If you use your multiple exposure on your margin money, the draw-down will multiply as per the rate of your multiple exposure. Suppose if you use 5 times multiple exposure on your margin and if you incur 4% loss on that trade, the draw-down would be 20% (4 x 5 = 20). 

If you habitually utilize 5 times multiple exposure and if you incur 4% loss continuously in 5 trades, you will lose all your capital and you will be thrown out of business. Even if you incur loss continuously in 3 trades, the draw-down would be 60% and you will be in do or die position to earn more than 150% of profit on your remaining capital to simply get back to break even. So, you should plan your money management in such a way that even if you continuously incur loss in 20 trades one after the other, you should be in a position to stay in the game till the end until you book profits, even if you incur loss continuously in twenty trades.

You should always remember that following strict risk management techniques and money management techniques is more important than following profitable day trading techniques and stock selection methods to earn profits in day trading. You should only risk a small portion, again repeat a small portion of your trading capital in one trade.

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Risk Disclaimer:
You must know that trading in stock market and currency exchange market has varying element of risk, and its is generally not an appropriate avenue for someone of limited resources or limited investment and limited trading experience and low risk tolerance. Further, trading in Stocks Market and in currency exchange market is regulated by and is subject to applicable laws in your jurisdiction and may or may not be permitted under such applicable laws. Before deciding to invest in stock market and currency exchange market you should carefully consider the applicable laws, your investment objectives, risk appetite and your current financial condition. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. In case you suffer adverse consequences or loss, you shall be solely responsible for the same

Why day traders incur Heavy losses?

Why day traders incur Heavy losses?

Most day traders incur heavy losses in the first few weeks of their trading and leave day trading after losing all the capital.  why would they lose all their money and quit trading? not because they are inefficient. These day traders have just an above average education on financial markets and lack of trading education.

 

All newbie traders think that trading is easy and a way to quick money.  They think that since they are successful in their early activities they can trade consistently with high accuracy. They think that they can invest small amount and trade for large LOT SIZE to earn big profits by utilizing high LEVERAGE on their margin amount and fail to understand the effect of trend reversal on their trading capital because of too much exposure. They ignore to understand that day trading is a highly challenging business which will reward only to disciplined traders. Most importantly they ignore to understand that they should learn before starting day trading.

you should thoroughly educate yourself to earn consistent profits in day trading, also you need to educate yourself on the psychological approach of the market and strong discipline to follow money management techniques for your account size. You should also educate yourself in the correct entry and exit methods of your currency pair.

Trading is not an exact science, But more of an art, There is no magic formula. Trading is all about probability. Art to correctly apply from a set of rules on specific chart patterns carefully and allocating the probability of that event to result in success.  The way you approach the market psychologically has much to do with your success as any trading plan.

 

Money management plays a crucial role in becoming a successful trader.

An adequately funded account is necessary, not only to be able to take the traders you want but also you don’t feel every trade is a life or die situation. If you have an only small capital, trade with that capital only. Don’t try to make big money by utilizing up to high leverage on your small capital. To become a successful trader ask and answer yourself the following questions How much equity do I need to start? How much should I risk on each trade? Am I undercapitalized?

As you begin the journey to become a successful trader you will confront your deepest fears. Your armor on this journey will be confidence, knowledge and believe in yourself that you can achieve your dream.

As a day trader, you have to realize that you have no control over the market and if you accept this fact then you should also accept that you cannot influence the direction of the market.

Intense excitement when you hit a winning streak is almost detrimental as becoming depressed when you have a string of losses. As a day trader, you have to learn to balance the state of impartiality over winning and losing of trades. You have to accept the fact that you will have losing trades readily as you will have winning.

Reach the stage where you comfortably accept the loss for the knowledge that your method of trading will produce profits in the longer term.

Once you become a disciplined day trader, then the possibilities are endless to earn consistent profits in a day trading.

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Risk Disclaimer:
You must know that trading in stock market and currency exchange market has varying element of risk, and its is generally not an appropriate avenue for someone of limited resources or limited investment and limited trading experience and low risk tolerance. Further, trading in Stocks Market and in currency exchange market is regulated by and is subject to applicable laws in your jurisdiction and may or may not be permitted under such applicable laws. Before deciding to invest in stock market and currency exchange market you should carefully consider the applicable laws, your investment objectives, risk appetite and your current financial condition. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. In case you suffer adverse consequences or loss, you shall be solely responsible for the same

Gear up for BIG BIKING COMMUNE 2019

South India’s First-of-its-Kind 3-Day Bikers Festival

250 biking clubs, 8000 plus bikers, 100+ motorcycle brands and accessories.
22nd- 24th February 2019 at Chariot Beach Resort Mahabalipuram, Chennai

National, 9th  January, 2019: The BIG BIKING COMMUNE 2019, a first of its kind Bikers Festival in South India, will be held from 22nd– 24thFebruary, 2019 in the picturesque biking trails of Mahabalipuram; spread across 40 acres at the seaside Chariot Beach Resort, the Big Biking Commune will see the congregation of motorcycling clubs, passionate bikers and the best of the motorcycle brands and accessories, all under one roof.

This 3 day festival will celebrate the spirit of biking with workshops, bike technicals, stunt shows, custom-made and vintage bike exhibit, beachside games, contests, rock band performances and more. The event is expected to attract 250+ biking clubs across South India, 8000+ bikers, 100+ motorcycle brands and accessories who will partake in the spirit of the Big Biking Commune.

Big Biking Commune participants will witness

  • New bike launches
  • Stunt and adventure bike shows
  • Off-roading workshops,
  • Inter-club competitions
  • Beach drag races
  • Showcase of superbikes, vintage and custom-made bikes
  • Bike club parades and many more experiences
  • My Story – the biking stories

Arun Kumar, Convenor, Big Biking Commune, said, “Having worked with the automobile industry for over two decades, I have observed the desperate need for an annual fixture for the motorcycling community in South India. We will fill this gap with the Big Biking Commune. In this inaugural edition, we are delighted to have the Department of Tourism, Government of Tamil Nadu support us in this initiative and share our passion.”

Speaking about Big Biking Commune, R. Ramasubramanian, Big Biking Commune Architect, says, “It is the perfect pit stop for bikers and biking clubs to group together under a single roof to celebrate the bonding and brotherhood that runs deep in the biking community. Mixing passion with pride and promoting the biking culture is what the Big Biking Commune is all about. We are happy to kick start the biggest biker festival in Tamilnadu.”

For registrations and further details on the event, visit http://bigbikingcommune.com/ and contact 7337657740/7337657741         

Media Contact:  Suryakanta Dash – 9884042193

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Paper Trading

Paper Trading For Beginners.

What is paper trading and benefits of paper trading.

Paper trading is nothing but  trading with pen and paper without actually entering into any  monetary transaction. In paper trading you test your knowledge,  understanding accuracy and performance of you trading strategy . Instead of actually buying and selling currency you decided to trade, you actually mark the entry price in your notebook,  as the market touches the entry price and mark the termination of the trade, either profit booked or stop loss hit on the same paper. This trading record will tell you how your trading strategies working and how effective are you in initiating trade using your currency pair selection methods.

you can at least spend a few weeks paper trading before you go live with real money and time to familiarize yourself with your currency pairs selection methods. After learning this technique you should open a trading account in demo, 

then watch the real time price action of your selected currency pairs to spot buy signals as per your technique. If the price action gives buy signal you should initiate a Trade on paper by writing down the exact entry price, exit price and stop loss price  and open the same trade in demo account, After finishing the trade you should also write down whether you have made profit or loss on that trade. For every trade, you should also write down your comments on the trade regarding how you have identified buy signal, How you have classified that buy signal, (as strong signal or medium), if it ended in profit, what you have learned from that trade and if it ended in loss what you have learned from that trade.

In paper trading, the impact of fear and other emotions will be very minimal since there is no money involved. Naturally you will be very confident while paper trading when compared to real trading. This results in high success ratio. So, even if you have come out with high success ratio in paper trading, you then invest decent capital in real trading account during first few weeks and after earning profits you can invest large capital to earn more profits.

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