One of the criteria I check out on my potentail signal providers is their drawdowns (DD) to calculate the amount of equity I would need to trade their signals. Back in December I filtered only providers which never had a DD of more then approx. 500 pips and decided on maximum of 2 trades for my $1'000 account.
This was all fine untill 05.01.09 when the GBPJPY retraced up leaving FxMarkets and Scalpers Group with DD over 700 pips per trade until they finally went into profit again. So now 500 pips is not enough and even 700, and who knows how far the next retracement (like right now when I have a trade with 358 pips DD) will go.
Chris, who unfortunately lost his profit during the above mentioned retracement asks if 1200 pips is conservative enough. I am not an expert and I dont even pretend to be one. So I leave him to decide on his own. I still dont know when I will change the maximum tardes to two trades into my account.
One idea I did give him was to use also providers not trading the GBPJPY so hopefully they wont be in a DD during the same period the GBPJPY trades are, and you could "borrow" their margin if needed.
Another idea I didnt mention to Chris, would be to use fixed Stop Losses (SL) independent from signal provider, something like 250 pips. Others claim that in the long run this will lead to profit, I have not analyzed this and would love to hear from someone who is livertarding them with a fixed SL.
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Hello again! Be careful with maximum drawdown, since it the sum of all opened position lows at a given moment. I don't think anyone out there would open 10 sell positions positions like a lot of providers do. I think that the most useful stats are in the recorded lows (you can use the Excel spreadsheet). And compare those lows with the stop-loss that you would have. Any lows greater that your stop-loss would have triggered a stop (loss)... I really think that the whole analysis point is in there.
ReplyDeleteI hope everything will be fine with account this week!
Scott
I've added a link to "friends blog" on my blog to yours, you could do the same if you want ;) These are all great information that is profitable to a lot of person I think.
ReplyDeleteThanks Scott, I linked your site to mine aswell, you have lots of info there.
ReplyDeleteConcerning your first post, the maximum DD is actually TOTAL of all DDs together from the begining of the Providers trading! So it is basically useless! as you say one has to look in the Excel sheet. However if you hover over the DD on the Provider list it will show you the worst DD at one time, but as you mention, that is with all positions at a time which no one will trade calculating his margin.