| Starting Balance: | |
| Consecutive Losses (Periods): | |
| Loss per Trade (%): |
Ending Balance:
Total Loss (%):
| Periods | Starting Balance | Ending Balance | Total Loss | Total Loss (%) |
|---|
Forex Drawdown calculator is a Forex calculator that gives you ending balance and total loss on your trading account after a number of consecutive losses.
The drawdown calculator requires three variables to be entered and you get a table with the results.
You can use this calculator in trading to see what you could experience if you have a number of bad trades in a row. This information is useful for a trader to see how much capital you will have after a losing streak happens.
This article will show you how to use a drawdown calculator and how to manually calculate drawdown on your trading account.
Contents
What is Drawdown in Forex
Drawdown in Forex is the amount reduced in the account balance caused by the consecutive losses. And drawdown is calculated like an account balance difference from account balance peak to account balance low caused by that consecutive losses.
For example if you have $10 000 at the start and you have 2 bad trades in a row. Each trade has 2% risk which means you will lose 2 x 1% = 2% (roughly calculated).
$10 000 – $200 = $9 800
So the account balance peak was $10 000 and you have ended at $9 800 which is account low.
The drawdown on this account is $200 from $10 000 to $9 000.
But this is a quick overview of how drawdown works, but there is a formula you can use to get the calculation correct.
Read more: Risk:Reward Ratio Calculator
What is the Formula for Drawdown
Formula for drawdown is equal to:
P = Peak Balance
L = Lowest Balance (valley)
How Do You Calculate Drawdown in Forex?
In the case from above where the account started from $10 000 and ended on $9 800 here is drawdown calculated.
First Trade
When you open your first trade you have $10 000.
Drawdown = (10 000 – 9 900) / 10 000 = 100 / 10 000 = 0.01
Drawdown in % = 0.01 x 100 = 1%
Second Trade
Now, on the second trade you start with another account balance and that is $10 000 – $100 = $9 900. Now you have another bad trade with 1% risk.
1% risk on $9 900 = $99.
Drawdown = (9 900 – 9 801) / 9 900 = 99 / 9 900 = 0.01
Drawdown in % = 0.01 x 100 = 1%
Now you have ended up with $9 801 after 2 bad trades which is difference of 1.99%:
($9 801 – $10 000) / $ 10 000 = 0.0199
in % = 0.0199 x 100 = 1.99%
What is a Drawdown Calculator?
Drawdown calculator in Forex is a tool that calculates account balance drop from peak to valley caused by the consecutive losses.
You can enter starting balance, number of traders and the risk per each trade and as a result you get ending balance with percentage drop.
You also get a table with the results so you can see how the results change on each trade you lose.
How to Use the Drawdown Calculator
If you put the numbers in the drawdown calculator from the example I have shown you where drawdown is 1.99% you would get this.
You can see in the table below where the drawdown calculator gives you each step in calculation.
You can see that the calculator quickly calculates all the trades for you where you define starting balance, number of trades and the risk per each trade.
You get an ending balance and total loss in percentage after drawdown is calculated.
Conclusion
Drawdown calculator in Forex is a useful tool that shows you what you would end up with after consecutive losses on your trading account.
The drawdown calculator requires you to have constant risk per each trade. If you would like to change the risk per trade you would need to manually calculate each of the steps.
Read more: Forex Trading for Beginners
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