How to Avoid Drawdown?

maximum-drawdown
We all know how profitable the martingale is, but also how dangerous the martingale strategy can be. As much as the martingale strategy can be profitable and generates profits every day it can also wipe your account or leave you in stressful all day and even longer.

Most of the traders I know always prefer to trade Gold “XAUUSD” and using the martingale strategy! In numbers, a trader can easily generate 300 - 400 USD a day with a balance of 10,000 USD using martingale strategy but, Gold is volatile and it changes its direction quite faster than currency pairs.

Having said that, and if you are using a trading robot that uses the traditional martingale strategy, your account is at very high risk and can be wiped at any moment.

Now, let’s talk about the positive side

The drawdown can be avoided, yes. Or at least it can be reduced. It’s all about managing the trading directions. To do that, you will need to manually set the directions either once a day or once a week or once a month!

Technically, you need more than 1 confirmation to set the trading direction. If you are a scalper, you may consider M15 time frame, if you are a daily trader, you may consider H1 and H4 time frames. The higher the time frame the more stable it gets to dictate the trend.

Trend is your friend. Always remember to trade what you see, not against.

I wrote this post a week ago to explain how to trade with 100 USD and scale from there. Now I will focus on how to avoid drawdown.

Raising and falling channels in H1 and H4 time frames is a key player here. It will shed some light in dictating the trend direction. Besides, ATR or the trend indicator, and the supply and demand.

We have 3 tools so far. Now we have to choose the most reliable time frame to follow and consider. This depends on your trading style and intervention. If you have time to sit in front of the charts, consider M5 or M15. If you don’t want to be stressed, and give your trades lots of pips and higher rewards, you may consider H1 and H4, but you will leave the trades open for several days.