Now it's time for a little exercise. Here are two charts with obvious up and
down trends.
The maximum drawdown indicated by the blue line starts from the high at
78.66 and ends at the low at 78.18. The trend drawdown in pips is:
78.66 – 78.18 = 0.48 (48 pips)
Now let's calculate the percentage drawdown. The visible uptrend starts from
the low at 76.06 and the maximum high is at 79.50.
The overall move in the current chart is:
79.50 – 76.06 = 3.44 (344 pips)
The percentage drawdown is:
48 / 344 = cca 14%
No doubt, the trend with drawdown below 15% is solid. Place the Stop Loss at
least 49 pips below the initial entry point.
In the next chart, there is a downtrend.
The trend drawdown in pips is:
1.3065 – 1.2955 = 0.0110 (110 pips)
Now let's calculate the percentage drawdown. The visible downtrend starts
from the high at 1.3283 and the maximum low is at 1.2682. The overall move
in the current chart is:
1.3283 – 1.2682 = 0.0601 (601 pips)
The percentage drawdown is:
110 / 601 = cca 18%
The trend reliability is moderate. Place the Stop Loss at least 111 pips above
the entry point.