A drawdown calculator is considered one of the most important risk calculators in a trader's toolbox. One of the features of our drawdown calculator is allowing traders to accuretly simulate what should be the ideal percentage of equity to risk per trade.
The use of this calculator can also help traders on avoiding reaching an unconfortable percentage of drawdown that could, eventually, put the account equity at the risk of complete loss. For example, even using a moderate rate of 7% per trade, on a string of 10 consecutive losses, can wipe out more than 50% of the account’s initial capital.
We recommend traders to always use, and integrate, this drawdown calculator with any sound Money Management system or with an Account Equity Risk Management plan, before opening a trading position.
Starting balance: This will be a trader's initial account equity. Let's say for example 1,000 units of any base currency.
Consecutive loses: In this field traders can simulate a strike of x consecutive losing trades. Let's use, for our example, a series of 6 consecutive losing trades.
Loss % per trade: The crucial field of the drawdown calculator! As a rule of thumb, professional traders do not risk more than 2% of the account equity per trade. This proven methodology allows traders to last longer on their trading careers and, eventually, to recoup from previously losing trades. So, let's use 2% per trade for our example.
Now, we hit the "Calculate" button.
The results: "The Ending Balance" after losing 6 consecutive trades and the "Total Loss" percentage. In this case, an initial equity of 1,000 units of our account currency, after 6 consecutive losing trades, is now 885.84 units.
This means, even with only 6 consecutive losing trades (quite common in forex trading) and using a conservative, and recommended 2% risk per trade, the account balance has just lost 11.4%.
On the results above there's a detailed breakdown of how each losing trade affected the account balance, how much each losing trade is in total percentage and the ending account balance.