# Chapter 33, Part I. Risk Management Framework. Page 8

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 28, 2013.

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1. ### Sive Morten Special Consultant to the FPA

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Commander in Pips: Absolutely. That’s why it is so important not just earn pips, but to save them. This is even more important, I suppose. To illustrate it, let’s take a look at following table:

 Trade # Assets Value Supposed 2% Loss Loss, % Distance to Breakeven,% Compared to the Rest of Assets 0 10,000 200 0% 0% 1 9,800 196 2% 2% 2 9,604 192 4% 4% 3 9,412 188 6% 6% 4 9,224 184 8% 8% 5 9,039 181 10% 11% 6 8,858 177 11% 13% 7 8,681 174 13% 15% 8 8,508 170 15% 18% 9 8,337 167 17% 20% 10 8,171 163 18% 22% 11 8,007 160 20% 25% 12 7,847 157 22% 27% 13 7,690 154 23% 30% 14 7,536 151 25% 33% 15 7,386 148 26% 35% 16 7,238 145 28% 38% 17 7,093 142 29% 41% 18 6,951 139 30% 44% 19 6,812 136 32% 47% 20 6,676 134 33% 50%
So, from table you can see, that even if you will adjust loss value proportionally to the rest of your assets, you will have to earn more of a percent to get back to breakeven than your drawdown is. For example, after 20 loss trades your drawdown will be 33% from initial assets value. But since now you have just \$6,676, you have to earn almost 50% to return back to 10,000\$. Ultimately if your drawdown will be 90% and you will rest with just \$1000, then how much you will have to earn in percents to return back to \$10,000?

Pipruit: 9000/1000 = 900%! That’s almost impossible, especially if we will take into consideration that you’ve lost 90% of your account.​

Commander in Pips:
Yes, this is a tough task to do – make a 9x times of your account. So, let’s take a look at this process visually with the following chart:

You can see, that although loss develops proportionally to initial deposit, it is not proportionally to the rest of assets – you have to return more proportionally as you lose more of your account.

Pipruit: Yes, now I understand that. The reason is that you stand with less amount of money with each loss, while loss itself remains the same. So you have to earn more in percents on the rest of your assets.
Commander in Pips: Absolutely. That’s why when you’ve got a solid drawdown it will be harder and harder to return all loss back to breakeven, i.e. initial assets value.

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Lasted edited by : Oct 9, 2016