What is a trend drawdown
Trend drawdown is computed from pure price action and so is the best way to
determine the trend reliability. It simply tells you how deep the price went
against the current trend. You will appreciate this method in the next paragraph
“Protecting against volatility”.
Now, take a look at the chart below.
The blue line indicates the deepest move against the current trend. In this
example it is 233 pips. The whole move in this chart is 882 pips.
The trend drawdown is:
233 / 882 = cca 26%
Not bad. Conservative traders would prefer the trend drawdown to be below
20% as it is more reliable. The ‘big dogs’ prefer trends with drawdown even
below 15%. Such trends exist almost every day in at least one Forex chart.
Trends with drawdown below 10% are very rare, but when they appear, they
are gold mines – you can easily achieve a winning percentage above 90%.
The lower trend drawdown = the more reliable trend = the greater success rate
= the more consistent profit!
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