Definition
The largest amount of money lost on a single closed trade within a specific period.
Formula
Biggest Loss $ = Min (Loss on Trade 1, Loss on Trade 2, …, Loss on Trade N)
Where N is the total number of closed trades
Example
Imagine you have the following trade history for a week:
- Trade 1: Profit of $100
- Trade 2: Loss of $350
- Trade 3: Profit of $50
- Trade 4: Loss of $120
In this scenario, your Biggest Loss $ would be $350 (from Trade 2).
Key Points
- Risk Assessment: Shows you the maximum amount you could lose on a single trade, indicating potential vulnerabilities in your strategy.
- Position Sizing: Helps you determine appropriate position sizes to avoid excessive losses.
- Psychological Impact: Prepares you for the possibility of substantial losses on individual trades.
Considerations
- Only Closed Trades: Only trades where the position has been fully exited are included in this calculation.
- Executions vs. Trades: Profits on individual executions within a strategy are not considered separate trades. The total profit or loss of the entire trade is used.
