Knowing this number is JUST AS Important as knowing ROI.
Why?
Two reasons.
No matter what anyone claims, investing is emotional. Do you remember your emotions when you saw your account balance during the 2007-2008 crash?
Since I KNOW that investing in a trader/managed account is emotional, and that all clients are emotional I’d rather prepare you for the worse case, even though I don’t anticipate that ever happening.
The worse case is a 35% draw down (loss). IF (big IF) that ever happens, then all trading will stop and that trader will be fired. Remember we target 30-70% per year, and the reality of trading is that with higher potential reward comes higher risk.
With that said, I still believe it’s a lower risk than the stock market which is due a Major correction at any time now (it’s 2019 as I write this).
So with all trading systems you must KNOW your max risk, and be comfortable with it so you can sleep well at night.
In case you did not read my full website, one of the major advantages of my program is that you are in FULL control of your account and can log on anytime to see all trades and your balance.
This really lets you sleep easy at night.
This next reason is very important. It’s called: Draw down recovery.
New traders don’t seem to Really understand WHY low draw downs (DD) are super important. But, in about 30 seconds you will know what they don’t know.
If you have a 50% DD you need to earn 100% in order to JUST GET BACK to Breakeven!
If your 10k account, goes to 5k, you would need to double it (100% ROI), just to get back to 10k.
That is why it’s absolutely stupid to use ANY trading system that has a high drawdown EVEN if it makes 1,000% per year! Because at some point it would have a 50%, or 99% DD and you would be done!
With a 10% DD the trader only needs to make about 11% to get back to even.
With a 20% DD, the trader only needs to earn about 25% to get back to even.
One of my traders did 25%+ in about 6 weeks, so YES that is possible (and his DD was no where near even 20%).
For the power of compounding to work for you, the draw downs MUST be kept low. All real traders understand this and live by it.
Last point to understand is that “floating draw downs” are NOT losses.
A loss is not a loss until the trade is closed.
If you join, you WILL 110% see floating draw downs. Trades that go against my different traders for a period of time. This is NORMAL and not a big deal. If it closes out for a loss, then and ONLY then is it a loss.
The longer your invested with a good trader, the more comfortable you will get. After a few weeks or months you most likely will only log into your account once a week instead of every day.
Thanks,
Tim Mai
