Hi Friends,

While going through the results of the past few months trading contest, I found some interesting examples of contestants ending the month with more than 1000 plus pip points in the month, but still ending the month with one half or one third of the beginning equity. As we all know, making few hundred pips a month is in itself a big achievement. Still these contestants were not able to capitalize on their fantastic pip gains and ended losing more than half of their starting equity.

A deep study of their trades showed an interesting pattern- high leverage and poor money management. Only if they had used little bit less leverage and had strict money management rules, they would have ended the month in the positive. Even though they might not have been in winning position at the end of the month, their ranking would have been significantly higher than what they had achieved.

Below are two randomly selected examples of contestants who made around 1000 pip points in the month, but had vastly different equity balances at the end of the month.

Example 1-

Pip points gained- 1002

Start of the month equity-$100,000

End of the month equity- Around $60,000

Win/Loss ratio- 85%

Maximum equity drawdown- 60%

Above contestant had an unbelievable run of 34 positive trades in a row, netting him around 1350 pip points. In these 34 trades the contestant’s trading lots were irregular, ranging from $1,000,000 to $5,00,000. Then he had 2 big drawdowns of 30% and 60% each wiping out most of his profits from all the previous trades. Trading lots used in losing trades were $5,000,000 and losses were over two hundred pips.

If the contestant has restricted himself to using trading lot of $2,000,000 for the whole month, he would have been able to avoid those huge drawdowns, and would have ended the month with equity of around $300,000 instead of around $60,000 and would have considerably increased his ranking.

Below is the actual weekly balance of the contestant during the month of the contest/ the would-be balance if he had traded lot of $2,000,000.

Week 1- $314,000/ $345,000

Week 2- $471,000/$454,000

Week 3- $113,000/$360,000

Week 4- $60,000/$300,000

Example 2-

Pip points gained- 1002

Start of the month equity-$100,000

End of the month equity- Around $180,000

Win/Loss ratio- 70%

Maximum equity drawdown- 10%

This contestant, on the contrary was a bit conservative in his trading lots and thus in spite of having few losing trades of over hundred pips, there wasn’t any huge equity drawdown. And thus he ended the month in the positive. Again, contestant’s trading lots were irregular, ranging from $200,000 to $2,000,000. If he had used a fixed trading lot of $2,000,000 for the whole month, he would have ended the month with equity of $300,000 instead of around $180,000.

Below is the actual weekly balance of the contestant during the month of the contest/the would-be balance if had traded lot of $2,000,000.

Week 1- $111,000/ $198,000

Week 2- $109,000/$178,000

Week 3- $134,000/$183,000

Week 4- $180,000/$300,000

The above examples show that if we just concentrate on making maximum pips in our trades and ignore sound money management principles, we are not going to achieve maximum growth in our equity. Also our trading would be similar to gambling if we are in a loss in spite of making over 1000 net pip points in a month.

Even though somebody might say that this is a competition and that we have to take risks. But I think the purpose of the competition should not be just to be in the top ten and win some cash, but we should use such competitions to enhance our trading skills, try different trading plans and most of all learn to preserve our equity. There is an old saying, “You have to be in the game to win the game”. We can’t end the month in the top ten if we blow our equity midway during the month .

There is plenty of data available at the Dukascopy contest results section. I am planning to go through all the data from past results and try to uncover new ideas and strategies from successful as well as unsuccessful contestants.

Thanks for reading this article and Good luck in your trading.

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