Trading Systems Have What Are Commonly Referred To As Draw Downs

What sort of return do you expect to make? This is an incredibly important because it is the basis for what sort of trading will take place, what markets are best suited for the objective, along with the types of risks that are expected.

Let's start with a very simple example. Suppose a trader would like to make 10% each year on a very consistent basis with little variance. You'll find any number of options available.

If you're thinking about buying stocks then there are plenty of things you need to learn. The internet is full of advice & courses, but the difficulty is knowing where to begin.

If rates of interest are sufficiently high, the trader could basically put the money in a fixed income instrument like a CD or possibly a bond of some kind and take relatively little risk.

Should interest rates not be sufficient, the trader could use one or more of any number of other markets (shares, commodities, currencies, etc.) with varying risk profiles and structures to find one or more (possibly in combination) which suits the need. The trader might not even have to make many actual transactions each year to achieve the objective.

The Forex market never rests, staying open on a 24 hour system. This is an incredible benefit to those who need to see their investments and make consistent moves.

A trader looking for 100% returns each year would have a very different situation. This person will not be looking at the cash fixed income marketplace, but could do so through the leverage made available in the futures market.

Similarly, other leverage centered markets are more likely candidates than cash ones, perhaps including equities. The trader will almost certainly require greater market exposure to achieve the objective, and most likely will have to execute a larger quantity of transactions than within the previous situation.

If anyone is lucky enough to actually have some spare cash to keep every month, there's a lot of possibilities intended for earning interest on your own savings.

As you can see, your goal dictates the methods by which you accomplish it. The end certainly dictates the means to a great degree.

There is one other consideration in this specific assessment, though, and it is one which harks back to the earlier topic of willingness to lose. Trading systems have what are typically known as draw downs.

A draw down is the distance (measured in percent or account/portfolio value terms) from an equity peak to the lowest point immediately following it. For example, say a trader's portfolio went up from $10000 to $15000, fell to $12000, then went up to $20000.

First off, a penny stock is a stock which is priced between 1 cent and $5 and is traded over the Pink Sheets or the OTC Bulletin Board. These stocks could also trade on foreign and other securities exchanges.

The decline from the $15000 peak to the $12000 could be considered a draw down, in this case, $3000 or 20%.

Each and every trader must determine how large a draw down he or she is willing to accept. It's very much a risk/reward decision.

If you're unsure about how much money you are ready to risk, read more about the trading game by going to http://artfieldinvestmentsrdinc.info/blog/. Contacting a financial consultant may shed some light on other ways of making money.

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