hey guys you know that i love the comments and interactions from all of you on our YouTube videos and by email and that kind of thing so i thought because of that today what I'm actually going to do is answer one of our YouTube comments in this video so here goes this video is pure bullshit i've been trading or so-called conventional forex trading platforms put 10 years and believe me sometimes I've had to leave some losing positions are open for up to a year and a half before i could see some profit and they were positions were 20,000 pounds or more the real big-time losers operate on conventional 4x perhaps with other people's money as it might be the case for this guy that bloody hell alright well besides the obvious that unless you're in the big short it should be taking you a year-and-a-half before you start seeing some profit raid besides that that we're not going to shoot this guy down let's discuss a topic that's really going to help him out if you choose to watch this bullshit and also help our love you as well based on all the emails that I've seen from you guys before so let's talk about your drawdown percentage but first of all what is drawdown in trading drawdown is basically the percentage of your capital has been lost at any point in time so taking it from the peak the very top of your capsule mountain down to the trough ok so for example if your account has started capsule of 10,000 pounds and you lose 3,000 pounds that represents a drawdown of thirty percent you've lost that percent of the account and it also counts for Tracy haven't closed yet so unrealized losses in other words paper losses it counts for that as well so it's not just the losses that you've actually close that come from your balance but also the trees are open let's just start off with the basics of money management and really really the basics so any point in time with one trade you don't really want to be risking any more than say once to some of your account balance and ideally you want to get that closer to once and be in the maximum rather than tube set and if and it depends on the situation how much your account you're going to have a risk that being the maximum so for example in some situations where there's an opportunity that is particularly risky or you want to control that risk level you might actually end up with just like no point two five percent of your account at risk or even less than that so all depends but ideally you only want to max our one or two percent so already if you want to be a sustainable consistent trader that's going to potentially make money over the long term and not because flash-in-the-pan type is gonna burn out there and Cal quickly then you need to stick to that role of your money management don't be like that guy that's staying in a trade for a year and a half without seeing any profit but you know what makes me laugh if you look at social trading platforms like for example zulutrade if you look at the league table of the most followed traders so in other words what should really be the top performers then they have phenomenal returns their percentages are ridiculous that you make a fortune like that with those census returns but if you look at drawdown that drawdown is crazy is so big that it would wipe out your calendar regularly so if you're following these traders you can expect to be losing your money on a regular basis so these guys you know anyone can show a good percentage return if you're holding onto your trace through thick and thin until the end up being a winning trade of course your show good return but it's the drawdown that matters but with these social traders you can kind of understand it they're being very deceptive and manipulative because they're trying to get high returns so they attract followers attract investors so they get their commissions when really they don't care about the drawdown they don't care about being sustainable on our hands private traders don't have the same incentive they're not trying to pull the wool over someone's eyes and get a huge return with that massive drawdown they're doing this trading for themselves so why would they end up getting in the same situation of having massive drawdowns well guys this is all down something called loss aversion which is an element of prospect theory which was developed by Daniel Kahneman and Amos first key the theory itself is quite simple when it basically saying is that people have a tendency to prefer to avoid losses than they do to try and acquire games so enough words the losses are having a deeper effect on them then the games of an equal value and this was backed up further by ratio boy in his scientific paper called Men Behaving Badly in this paper he found that people rather than accepting defeat when they already in Los will actually have a more aggressive decision-making process so another words are going to take more risks as a result of not being able to accept defeat not being able to cash in that loss now to me this is an obvious sign of a trader that hasn't learned to control their emotions in the market yet Robin being emotionally neutral they're actually taking every trade personally so if they lose a trade their taken as negative feedback that they've done something wrong and they take that personally they take its heart rather than realizing that trading you going to lose some trades inevitably but it's about your net overall loss or gain rather than every single individual trade just learn to be emotionally neutral but that's not all we want to talk about state we want to talk specifically about drawdown and in particular I want to start setting some goals about drawdown in our overall strategy now i know that i love you starts to include some money management principles in your overall strategy and hopefully this has helped you to avoid single trades drawdowns happening but in any case we'll go over again just to refresh our memories a little bit ok so the maximum drawdown that you're going to accept with your strategy is mainly going to come down to your personal risk appetite if you first take bigger risks you're our larger percentage if you want less risk your allow smaller percentage now for me personally i like to keep things in single digit percentages so basically I don't allow my my draw down to exceed temps ends apart from when we were in a particularly tricky time when you're maybe get a few losses books things are a bit choppier that I might let that extends to about fifteen percent as the very maximum now as I said this has to be in line with your risk appetite and if you keep seeing yourself getting close to that maximum drawdown that's not an indication for you to extend the maximum drawdown that you allow of your strategy is a sign that either you need to reduce your position size portrayed or in extreme cases you may need to go back to the drawing board back to a demo account and starts work out what's going wrong with your system that's causing you to lose so much on on each trade or as an accumulation of multiple traits and guys this isn't just for beginners I'm not telling you students because you can't be trusted to manage your risk on your own you know that even professional traders also have a maximum drawdown that they allow themselves to have even investment funds they'll have man days that stipulate the maximum drawdown they can have I think the most common one that I've seen is about twenty percent obviously it's all going to depend on the time horizons of the traits and also the taxes that are being traded like for example if you're actively trading forex like most of you are then really your drawdown sensor should be smaller because the daily fluctuations are much shallower then you would get over the long term so therefore you need to control all about risk about drawdown that happens it should be that's a bit on the other hand if you're investing in equities over the long term in a portfolio then probably want to allow a more significant drawdown percentage because you don't want to have to close positions because of some small fluctuations you're looking at the longer term and the bigger longer term returns as a result of that and you know this actually in line with the myopic loss aversion vary by richard bandler because he states that the more frequently you see information about your investment performance so in our case our trading drawdown the more likely you are to want to rein in the risk a lot more if you're your time horizons our longer-term you're receiving the information less frequently you're more accepting of risk so that's hires in with what we're saying about having a smaller drawdown percentage for active trading and a larger drawdown percentage for the longer term so all in all guys don't be like that guy that commented saying that all of trading with bullshit just books yet Holdings were trade for a year and a half and don't be like the zoo traders Eva to put it bluntly just don't be a coward don't be this coward is going to let trades running a loss forever and ever because you're too scared to actually close it and take that defeat in the end they're not the fees it's just part of trading and as for your multi trade drawdown just remembered setup sense that you're comfortable with and if you see yourself getting too close to all the time either brain back on a position size because your money management plan and your drawdown percentage have to be closely linked in tight together and if you keep hitting it may be as times go to add Mr Calvin there's no shame in that just switched with them or count and practice until your system gets better that you're not going to hit a drawdown sensual time because remember guys it's not about how much money you make but how much money you actually keep hold off we don't want these drawdowns ruining our group performance so if you like this video remember to give us a thumbs up we really appreciate those and if you want more videos about chinese trade make sure you hit the subscribe button and don't forget to sign up for free in a circle mailing lists you get access to a four-part video miniseries to learn more about our exclusive and unique metal trading guys it's been a pleasure spending some time with you stay take care and I'll see you in the next video bye bye