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The final part of this review will be devoted to discussion of coherence between deposit load and drawdown. Trading signals of Ifeanyi Obi will be used as example to prove our arguments.
Let's start by figuring out meaning behind term "deposit load":
The deposit load value shows the percent of account funds used to open positions; formula: Deposit load = Margin/Equity * 100, where
Margin = Lot value (in the symbol base currency)/Leverage value, where
Lot value = contract size of 1 lot * #of lots. For example, for EURUSD typical contract size for 1 lot is 100'000 USD.
Besides all the mathematics here, what effectively deposit load shows is whether chosen levels of position-sizing is reasonable. In real-trading conditions, a trader is the one who controls Margin side, while market is the one that "rules over" Equity side. Because of that, trader is the one who choses "initial" deposit load level, and market is the one that "corrects" it through price action. In the result, lower initial deposit load will lead to higher tolerance of market shocks and will increase market moves that an account can absorb.
So what is relationship between deposit load and drawdown? - mathematically, this one could be hard to grasp, but intuitively - higher initial level of deposit load will lead to higher and more uncontrolled drawdown. Effectively, drawdown/deposit load ratio can show how large market moves is a signal tolerating. Low ratio of these, below 1, indicate that whether signal is quick (in terms of pips) to cut it's losses or it has been just lucky and has not experienced higher DD in terms of pips.
Some examples here:
FX Sumo STeady - max DD 57,4%, deposit load 8,4% -> ratio is ~7, which confirms the fact that signal has survived more than 1500 pip move against it;
Millionaire Signal - max DD 27,3%; deposit load 14,3% -> ratio is ~2, it has survived both ~300 pip move in GBPUSD and ~200pip move in EURUSD against it;
ICM1 (much criticized) - max DD 42,1%; deposit load 26,7% -> ratio is 1,5, last 40% DD was caused by 120+ pip move in USDCHF;
ChickenPips - max DD 11,9%; deposit load 17% ->in the previous months this ratio was higher, above 1, therefore, one can argue that the author actually did trade too agressively in the month of November, as currently the ratio is significantly below 1. Despite that this increased position sizing did not lead to significant losses, questions remain about author's ability to continue trading in calm manner. The fact that signal is being traded purely-manual does not help here either, and that is why it is placed at T2 position and not above.
Safest 5 percent/ Investicum/Success -> all these use the same trading methodology, thus. will check only 1 of these -> Success - max DD 20,2%; deposit load - 28,8% -> ratio is very low month after month -> signal must be keeping it's trades in check, right? - nope, not really: