I’ve recently opened an XM account because I want to try copy trading. I have been reviewing a lot of options and I’m mainly interested in those wiht a high win ratio who trade currencies. You’ll see from the attached image the best performers in this cateogyr but could someone pls explain what “drawdown” means exactly? You’ll see it’s written in the top right corner of each trader as a percentage.

Cheers in advance.

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[Steve]

Drawdown refers to the decline in the trader’s balance. It’s the highest to lowest point of the account value over a period. It’s actually really important because it’s giving you information on the risk of the trader’s strategy.

For example, ‘2024 Strategy’ is potentially a riskier pick from those you’re looking at given the 95% drawdown.

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[MartinSals]

Cheers

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[OliverDr12]

I would be thinking about one with a low drawdown like NKS-AI because it suggests they probably have reasonable risk management practices and are decent at preserving cash.

Ask yourself: are you willing to risk more inconsistent results for what could be larger returns?

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[MartinSals]

Cheers.

To answer you question, I have a somewhat healthy risk appetite and I’m willing to see some inconsistency if it means potentially better returns. But I don’t want to go for one of these very up and down traders. I’m finding a middle ground.

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[Christian HarrisParticipant]

Don’t get hung up on win rate.

I’ve copied many high win rate strategies on many platforms, but often these strategies ditch stop-loss orders. This means they hold onto losing trades hoping the price will bounce back.

Sure, winning a lot of trades sounds good, but what if a few big losses wipe out all your small wins? Effective risk management, which includes stop-losses and position sizing, is key to surviving in the long run.

When copy trading, here’s what you should really focus on:

Drawdown: This refers to the biggest decline (equity and balance) a strategy experiences from a peak. A strategy with a high win rate but big drawdowns can be riskier than one with a lower win rate but smaller drawdowns.

Risk-Reward Ratio (RRR): This compares the potential profit to the potential risk on each trade. Even a strategy with a lower win rate can be profitable if the wins are much bigger than the losses. For instance, a 30% win rate strategy with a 3:1 RRR could be better than a 70% win rate strategy with a 1:1 RRR.

Focus on these metrics to find a strategy that balances potential gains with managing risk. Win rate is for vanity only and doesn’t guarantee long-term success.

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[Author]

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