I see a lot of criticism about many systems’ trades that have more drawdown than profit. So what? Look at it his way: if you walked into a bank today, borrowed $1,000,000 at 5% annual interest, and made about 10% return on it in 37 days, and therefore had approximately $1,000,000 + $100,000 = $1,100,000, after you paid back the loan in 37 days, $1,100,000 - $1,000,000 - $5,000 (37 days of interest) = $95,000! Not bad, huh? Borrowing to make $95,0000, which is less than 10%. Any brick and mortar business would love a return like that, but in the FX world one is considered an amateur if profit was only 10% of drawdown. Why?


How did you come up with that comparison?

If you borrow 1,000,000 from the bank, there was never more at risk than the 5,000 you pay in interst.

But if you leave those 1,000,000 in somebody’s care to make 100,000 for you, and at some point you only have 350,000 left and are gravitating toward zero, that’s maybe a little different story…


A draw down would not be a problem if you could be sure that it will recover. But usually there is quite some chance that it will go down the rest of the decade. And a large draw down may cause a margin call, after which your position can be liquidated - making it impossible to recover.

Case in point … this particular forex system has lost 50% of its equity in 4 months and therefore needs to make 200% of existing equity in the next 8 months to get back to even for a one trading year period. Certainly doable in forex, but it looks like a big hill to climb if individual trade drawdowns are allowed to be so large. Good luck hitting a homer or two before the game is over.