Drawdowns – Use Bookmap™ to Minimize

By wtl
Avoid Drawdows with Bookmap

Drawdowns are likely to happen when there is no clear “standpoint” in trading.

Let me try to explain my standpoint on drawdowns:

If you are a trader who is used to make his decisions based on candle, foot print or volume profile charts then it is more likely that the drawdowns become larger. The reason – in my opinion is – that these traders don’t really see what the market makers are planning. This is because of the nature of these charting systems. Every line, indicator or candle is plotted on the chart AFTER the event happend.

Every common trading chart shows the past!

Since we can’t forseen the future we are trying to extrapolate the plotted events on the chart into a possible or probable forecast and then place our trades on this believes. This becomes worse when you choose a data feed which doesn’t provide quality data. 

As human beings we are not good at all in forecasting. We use several techniques to minimize our risk. One of them is our Stop handling. Trading stops and their usage is a philosophy for itself. Every trader has his own philosophy about stops, their usage and their meaning. 

Why Order Book?

I am trying to spread the word that every trade – which always happens between 2 individuals – is kept in the Order Book. Order Book gives me the idea what is traded at which price at what level. There are other fine information Order Book gives me. Saying that, the order book is the direct place where “manipulation” can be seen in time. Not hindsight! 

This “manipulations” can be expressed in words, like:

  • Absorption
  • Exhaustion
  • Liquidity
  • Sweeping
  • Spoofing
  • Pulling, Stacking
  • Book Flipping 
  • and more ….

More then 99% of traders, I was one of them, don’t know that. For most of these traders, trading can be expressed like: “Gimme a signal, a line or a automatic trading system and I will trade!”

But excatly this Order Book techniques are the ones, which gives a serious and professional trader a clue what is happening every day in his choosen instrument. Of course it takes time to learn and acquire this knowledge like everything we learn, but with time it becomes a “second nature” in our trading. 

Today we are in the lucky position to have software platforms like Bookmap or Jigsaw trader which “translates” and visualises this terminology or this behavior in time on the historical chart.

It happens in time in front of you.

The only task you must master to become a professional trader is to understand, what the market is telling you .

However, with this knowledge your Drawdowns will stay low, because you see “support” and “resistances” in time, BEFORE the price touches those levels! You will use this knowledge to place your trades “before the trend becomes obvious” . Yes, it takes times to learn, but it pays off.

Emotional State

However, drawdowns happen, at least from my experience, when I am not in the right mood to trade, when I am impatient, tired, pissed on, etc etc.

In one word:

My “physical” and “pshychological” presence is not in the right state to trade, but I trade anyway. That was and is the reason for my losses. They have been very rare lately. In case of a bad day, I stop trading if my drawdown for the day is $600. 

Minimize your Drawdowns

My online course is about all this fine “terminology” – what it is, how it works and how to profit from it. Check it out.

READ ALSO this articles which are complementary to the post above:

Improve MAE and MFE with Bookmap™ Heatmap

Visualization in Trading

 

Please follow and like us:
error