Exercise
Now it's time for a little exercise. Here are two charts with obvious up and down trends.
The maximum drawdown indicated by the blue line starts from the high at 78.66 and ends at the low at 78.18. The trend drawdown in pips is:
78.66 – 78.18 = 0.48 (48 pips)
Now let's calculate the percentage drawdown. The visible uptrend starts from the low at 76.06 and the maximum high is at 79.50.
The overall move in the current chart is:
79.50 – 76.06 = 3.44 (344 pips)
The percentage drawdown is:
48 / 344 = cca 14%
No doubt, the trend with drawdown below 15% is solid. Place the Stop Loss at least 49 pips below the initial entry point.
In the next chart, there is a downtrend.
The trend drawdown in pips is:
1.3065 – 1.2955 = 0.0110 (110 pips)
Now let's calculate the percentage drawdown. The visible downtrend starts from the high at 1.3283 and the maximum low is at 1.2682. The overall move in the current chart is:
1.3283 – 1.2682 = 0.0601 (601 pips)
The percentage drawdown is:
110 / 601 = cca 18%
The trend reliability is moderate. Place the Stop Loss at least 111 pips above the entry point.
The ultimate solution
Discipline and patience are the two key points to succeed in the Forex market.
Stop hunting the market for every potential trade. Prepare before trading. Scanning a few currency pairs on all time frames can take you about 15 minutes, but the consequences are invaluable. Pick only the best trending currency pairs and time frames and ignore all other unpredictable movements.
Trade less, profit more. A few guidelines:
1. Trade only if the trend drawdown is below 20%, (preferably below 15%).
2. If the trend drawdown is below 15%, you can be consistently profitable even with a simple trading system such as “Donchian 5 & 20” (page 6).
3. If the trend drawdown is below 10%, you have found a gold mine! You can simply enter the market in the trend direction with a 90% success rate.
The Forex Trendy ultimate solution scans 34 Forex pairs on all time frames for you every second. It calculates the trend drawdown for each chart and shows the most reliable trends sorted by reliability based on your preferences.
Click here to watch a video how it works