VOLATILITY DRAG - The Hidden ThiefThis is a super important subjective to touch on.. And that topic is Volatility Drag, also known as Percentage Loss Trap.
I believe that most traders do not consider this in their trading. They know about win-rate, risk/reward ratios, compounding, and perhaps even the fact that losing 50% of your account will require you to make 100% just to get back to break even. But few take into acccount Volatility Drag. It can be a sneaky thief, eating away at your PnL, causing you to lose money even though it seems that you are profitable.
Volatility Drag is basically the percentage loss of your account that occurs from the volatility in your wins and losses. In this video I illustrate it on a spreadsheet and graph for your understanding.
This is why slow and steady wins the race in trading. Anyone that presents you otherwise is a fool and you should absolutely stay clear of such people. One cannot have a volatile equity yet not have volatile emotions. Either that, or they have not considered the math.
Safe trading!
- R2F
