{"id":1904,"date":"2019-11-14T10:04:32","date_gmt":"2019-11-14T07:04:32","guid":{"rendered":"https:\/\/roboforex.com/blog\/?p=1904"},"modified":"2023-08-01T15:08:57","modified_gmt":"2023-08-01T12:08:57","slug":"drawdown-what-is-it-and-how-to-escape-it","status":"publish","type":"post","link":"https:\/\/roboforex.com/blog\/blog\/2019\/11\/14\/drawdown-what-is-it-and-how-to-escape-it\/","title":{"rendered":"Drawdown: What is It and How to Escape It?"},"content":{"rendered":"\n

Such sonorous terms as Margin Call<\/a> and Stop Out<\/a> must be known to anyone who deals with trading. Each person has come to know it in their way: some got acquainted with them practically, forcefully closing their losing positions, some - theoretically, studying the basics of trading.<\/p>\n\n\n\n

If you have not heard these terms yet, a short lecture will, perhaps, make you think well about the consequences of unreasonable and excessively emotional trading.<\/p>\n\n\n\n

\"<\/figure>\n\n\n\n

Margin Call<\/a> is a notification from your broker<\/a>, in which they require to additionally replenish your security deposit.<\/p>\n\n\n\n

If after a Margin call the trader does not deposit heir account, and the losses keep growing, then after the price reaches a certain level, the Stop Out<\/a> procedure will be launched. This means the broker will close some or all open positions on the account. However, Margin Call and Stop Out are not as disastrous as the trader's actions that lead to them.<\/p>\n\n\n\n

One such action might be connected to unthoughtful trading operations based on no strategy or tactics, without risk and money management<\/a>. An example of such actions can be trading the whole capital both in periods of high volatility<\/a> and a calm market. In such times, the trader is more of a gambler, hoping for a quick gain.<\/p>\n\n\n\n

However, in most cases, a loss of the deposit is caused by an extended drawdown and irrational attempts to escape it. Primary drawdowns, in their turn, are caused by deviations from the trading strategy<\/a> (if there is one) and increases in trading volumes.<\/a><\/p>\n\n\n\n

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<\/span>What is a drawdown?<\/span><\/h2>\n\n\n\n
\"What<\/figure>\n\n\n\n

A drawdown <\/strong>is a decrease in the balance and equity on the trading account<\/a>; to put it simpler, a drawdown is a loss<\/a>. Drawdowns can be of two types: floating and fixed.<\/a><\/p>\n\n\n\n

<\/span>Floating and fixed drawdown<\/span><\/h3>\n\n\n\n

Floating<\/strong> drawdown is an aggregate loss of all open positions. Here, we highlight that the trades we are talking about are still open.<\/p>\n\n\n\n

For example, the trader opened a position, and then the market situation started developing counter the forecasts, so the trade yielded a loss. This loss will constitute the floating drawdown.<\/p>\n\n\n\n

Also, such a drawdown is called floating or temporary because a day or two later the situation might change either for better or for worse.<\/p>\n\n\n\n

However, as soon as the trade is closed, the drawdown turns from a floating to a fixed<\/strong> one.<\/p>\n\n\n\n

A fixed drawdown, in its turn, may be of the following types:<\/p>\n\n\n\n