What Beginners in Crypto and Forex Trading should Know About Relative and Absolute Drawdowns

What Beginners in Crypto and Forex Trading should know about Relative and Absolute Drawdowns

**RELATIVE VS ABSOLUTE DRAWDOWN**

Drawdown is one of the most essential things when choosing a prop firm.

Some prop firms use Relative Drawdown and some Absolute Drawdown.

Investments are a necessity , making them early is important.

But what’s better is having a company that guarantees minimum risk of losing.

And then you have this platform that helps beginners

XM Capital

For forex trading at

https://clicks.pipaffiliates.com/c?c=676250&l=en&p=0

Relative drawdown works like a dagger on the throat.

Below is an example of a 100K account scenario if The Daily Drawdown is 5% Relative or 5% absolute.

Let’s say you started with a 100K account and took a few trades which went up to 5K in profit but you didn’t close anything as you analyzed the market to move a lot more on your side.

Relative:

When the server reset the next day your equity will be 105K.

What Equity based prop firms do is they calculate daily drawdown from overall equity which is 105K and your drawdown limit for the next day will become 99.75K


A So basically your account balance is 100K but your drawdown limit is 99.75K which is just absurd you are getting to lose only $250 on a $100000 account.

https://one.exness-track.com/a/c_7hfrg0krwc

The only profitable trading strategy is to know the direction/trend of the market and to avoid trading against the trend.

Most importantly patience is the key, don’t chase a trend wait for pullbacks and place trades at the end of a pullback

Absolute:

If you consider the same scenario for a balance-based drawdown whatever happens the next day your Drawdown will still be 95K since your balance at the day’s end was 100K.

So you get to lose $5000 with the prop firms that calculate drawdown on an absolute basis instead of $250 with the prop firms that calculates drawdown on a relative basis.