[Tradewinds]

Drawdown vs. Loss What's the difference? Is it possible to know the difference before your stop is hit? If you can tell the difference, how do you do it? When do you decide that it's really a loss, and not drawdown? Is it better not to worry about whether it's drawdown or a loss? Should you just set your stop loss, and that is all you need to do?

[UrmaBlume]

A loss is the result of a single trade. Drawdown is the difference between a high and a low in the cumulative results of a series of trades.

UrmaBlume

[Tradewinds]

Originally Posted by UrmaBlume »

A loss is the result of a single trade. Drawdown is the difference between a high and a low in the cumulative results of a series of trades.

UrmaBlume

I just looked this up for drawdown:

Drawdown Definition

Ok, I guess I didn't know the official definition of drawdown. I viewed drawdown as the amount of money that the trade would have lost if the trade had been exited at a loss, when it could have rebounded for a profit. So for example, if the trade was entered at 100, then dropped to 95, then rebounded to 110, I thought the "drawdown" was 5. You see what I'm saying?

So what would you call what I just described above? Because I've obviously been misusing the term "drawdown".

[Tradewinds]

It is practically impossible to enter a trade without it initially going to a loss. The only way to enter a trade without it going to a loss, would be if the order filled from the bid/ask shifting without the price actually moving. That situation can occur, but don't count on it.

So, my point is this: An initial loss on your order is almost impossible to avoid. So it is something that needs to be accepted, and dealt with. It's all about the never ending situation in trading about where to cut your losses.

[SIUYA]

google- maximum adverse excursion - it will give you another measure to look at.

plus just because your stop is at a level it does not mean that you have to wait for it to be hit.

[Tradewinds]

One website states that Maximum Adverse Excursion only happens when the trade has a loss. Another site defines it in a different way. Then there is Maximum Favorable Excursion. I'm really not looking for either one of those. Those are statistic provided from backtesting. I'm looking for some kind of indication of whether the trade is going to go in your favor, after the entry, and some loss.

[SIUYA]

Originally Posted by Tradewinds »

I'm looking for some kind of indication of whether the trade is going to go in your favor, after the entry, and some loss.

the holy grail???
Some people apply a time limit, others a few bars, others just get out if it does not go in their direction right from the get go.... you choose.

[Tradewinds]

Originally Posted by SIUYA »

the holy grail???
Some people apply a time limit, others a few bars, others just get out if it does not go in their direction right from the get go.... you choose.

Those are all good conditions to have for a confirmation. Here are my confirmations:

• First bar going in the direction of my order needs to show some strength. Needs to be a higher high for a long, needs to be a lower low for a short, or needs to be a bigger than average price move in my direction.

• Hard price move against my order is a reason to exit.

• If no sign of strength in the direction of my order within two or three bars, exit.

• A strong price move in the direction of my order that turns and closes in the opposite direction on the same bar, is a reason to get out.

These are the kind of specific conditions that I'm looking for to make decisions. Being able to define my rules, will hopefully make the decision making easier. If the rule works, and the conditions are met, then act.

I should state that I'm using Traders Laboratory as a way to work through ideas, solidify my thinking and bring my trading rules to the front of my consciousness. Typing it out and posting them probably helps to set those thoughts more solidly and acts as a way to train those brain cells.

So if someone reading this wants to post their rules for a stop loss, then it may help you to recognize those conditions and make the trading decision easier.