Greetings s3791, thanks for pointing out this little mistake, really, i dont noticed the mistake... but happens.
So 5 CL = 1.5% total DD
Indeed its really possible to even make 6 concecutive losses. However, 6 concecutive losses shouldnt happen on a regular base, but lets try to figure out what to do if. (if that happens frequently, its adviceable to spot the problem in your approach and trying to adjust)
First of all, let me quote a few lines which i´ve written down in the risk management document:
Last but not least… This type of management has a downside as well, in case the recover to breakeven trade is going to end up in a loss as well.
At this point we are not going to increase risk anymore, no matter what. I can only suggest you to place recovery trades at the best possible NEXT upcoming setup you can find and never ever try to recover by consecutively position yourself within the same setup!
Crucial here ist the next BEST possible setup
In the meantime keep trading as always with one of the regular risk models and then by chance placing the recovery trade, on setups with the highest possible chance of a win. This way you make sure to still work efficient in an aspect of time. Maybe the meantime even recovers all losses and you can simply keep the higher risk recovery trade for the next one!
Its unlikey that the best possible setup appears right away. My advice here is simply to keep on trading with the regular riks models. Therefore anything from 0.15 - 0.30 % in the meantime. The reason why is simply, because you should be able to archieve a RRR of 1 : 3 on a regular basis, which equals.
- 0.45% gain @ 0.15% Risk
- 0.60% gain @ 0.20% Risk
- 1.20% gain @ 0.30% Risk
So its advicable to just keep trading one of the common risk models.
I also noted in the document is:
Only if suitable, but not necessary at all to do any sort of recovery trades
By that, not necessary to extend risk on any position, since you would get any draw down back to breakeven or in profit within the next 1-2 trades.
0.3% Risk now equals a total draw down of 1.50% after losing 5 consecutive positions. Technically speaking, you can recover all losses by simply sticking to the above examples, but to safe time and therefore keeping up the efficiency, we are going to increase the risk per transaction simply, because our initial risk in every example is that low.
You have to measure your risk appetite related to your skills. As in any method, a certain winrate is required. If you lose frequently 4, 5 or even more concecutive transactions, you should definately figure out why and try to work around it or fix it. However, you are not going to trade on a 0,45% hard cap. By hard cap i mean, you are not going to close out any position which equals exactly 0.45%, but let possible winners run further as long as it makes sense.
These trades then generate way more returns than just 0.45% which is enormously important for
a.) Some nice to have extra gains and
b.) To keep draw downs more efficent.
Means, if you have made like:
- Monday: 0.70%
- Tuesday: 0.45%
- Wensday 0.90
- Thursday: 0.50%
- Friday: - 1.50%
Then you have made 2.55% in captial gains in total. Now, if you minor the 1.50% of losses, then you are down to 1.05% capital gains this week. The difference now to 0.45% daily over the week is 1.20%. So technically you have to recover only 1.20% for that week to stay in your 0.45% schedule.
Last but not least...
Sometimes its more efficent to simply not work most efficently to keep risk as low as possible at all cost to gain the highest possible rate of control. However, not hitting the weekly cap every week is not the end of the world. You might keep on trading as usual and make it back on top the next week, or the following week. Maybe you even close the month with only 5% profits and make 15% another month.
There are so many ways to return these losses by not increasing any risk at all, but requires patiences and clear vision!
Losses are taken in consderation by having trades, which run further than the inital target of 0.45% to compensate. Without having further running trades and not archieving a R/R of 1 : 3 quite consistantly, it likely to be less efficent. Unfortunately you cant turn any win ratio / risk reward ration approach into good gains.
However, if your strategy does not fullfill the required winrate, the risk/reward and slightly the risk management has to be adjusted. If your winrate is somewhere around 50-60%, you should be more than fine.
I hope that cleared things up and answered your questions
By the way!
Are you okay if i put your question into the text document? I would like to add any related crucial question and the answers to the document, so ppl do not have then go throght the entire thread later to find any related important questions made?