#DRAWDOWN RISK FULL#

#DRAWDOWN RISK FULL#

That also means that the full backtest and all real-time signals are affected by _drawdown(). So our strategy will always respect the maximum drawdown defined by that risk management function. When we include _drawdown() in our strategy, it influences how the script behaves during each script calculation (TradingView Wiki, 2018). # The risk management function is active all the time After that the strategy will not submit a trade anymore.If the strategy has an open position, TradingView submits a market order to close that entire position.All pending strategy orders are cancelled.Once our strategy reaches the maximum drawdown we defined with _drawdown(), the following happens (TradingView, n.d. # This risk management function stops all trading This makes it a good idea to set a smaller maximum drawdown than the biggest loss you want or can take. In that scenario we also get losses bigger than our ‘maximum’ drawdown. The market can also gap against our position. That order can fill with slippage, which makes our ‘maximum’ drawdown worse than we wanted. Once our strategy reaches the maximum drawdown, _drawdown() closes the open position with a market order. # Losses can be worse than the ‘maximum’ drawdown It’s even possible for a strategy to be in significant drawdown when it doesn’t have a single closed losing trade. So drawdown is partly based on paper profits and losses, which we haven’t realised yet. That equity is the sum of the strategy’s initial capital, closed trade profit (including commission and slippage), and the profit/loss of the open position. TradingView measures the maximum drawdown with the strategy’s equity. # Drawdown is calculated based on strategy equity Let’s take a closer look at how _drawdown() behaves and what its features are. # Features of TradingView’s _drawdown() function _drawdown(value = 10, type = strategy.percent_of_equity) That function has the following default pattern (TradingView, n.d.): With the _drawdown() function our TradingView strategy automatically stops trading once a certain maximum drawdown is reached (TradingView, n.d.). Unsurprisingly, it’s easier to prevent a big loss than recover from it. Even when our strategy loses ‘just’ 40%, we’ll need to achieve returns greater than 66% just to break-even. # Stop a TradingView strategy based on maximum drawdownĪ strategy that loses a lot of money is a serious risk. Other built-in TradingView risk management functions.Strengths and weaknesses of _drawdown().Example: see the maximum drawdown develop on the chart.Example: stop trading after a drawdown of $2,500.Only affects the current strategy script.

Cannot be set with a true/false condition.The risk management function is active all the time.This risk management function stops all trading.Losses can be worse than the ‘maximum’ drawdown.Drawdown is calculated based on strategy equity.Features of TradingView’s _drawdown() function.Stop a TradingView strategy based on maximum drawdown.

Drawdown risk