Hello Trader,

Today I want to go into perhaps that most dreaded word to traders and what it is. Its called drawdowns.

Traders hate drawdowns but once you understand what they are and how to deal with them it makes it easier for you to cope with them and work thru them.

Drawdowns effect you account balance in the negative. When a string of losing trades or some larger than normal losses cause your trading balance to suffer and go down.

Lets first learn how to calculate a drawdown.

For example, you have a $10,000 account and you suffer 2 losses at $500 each for a total of $1,000. $1000 divided by $10,000 gives you 10%. Your account has a 10% drawdown.

Then with you $9,000 you hit a string of winners or a big trade and gain $6,000 which brings your account back up to $15,000. Sadly, you follow that with a loss for around $1500.

$1,500 divided by $15,000 gives you 10% which is the percentage of drawdown on your trding account.

See how this works? Look at it again and really grasp it.

It will serve you when evaluating a system that promises huge profits but you have to suffer through a %50 drawdown. I don?t know about you but mentally that?s a big drain on me.

Fortunately, if you taught the right skills and apply them then having huge drawdowns shouldn?t be a problem for you.

Take care.

Good Trading,

Billy W. www.stockoptionsystem.com

3828 West Davis Ste. 308-108 Conroe, TX 77304