So far we have seen that some of us would allow for up to 60-80% drawdown, yet some others would prefer drawdowns to not be larger than 15-30%. We would typically call the latter more conservative.

My claim is that the former have just undercapitalized accounts and that it is almost certain their accounts will get ruined pretty soon. The reason being that they just applied too much leverage, and it's a matter of time before they get a margin call and end with a wiped out account.

If the same streak of bad luck hits the traders from the conservative group, they will also experience a big drawdown, but their account will stand a chance to completely recover from the losses later on, as market conditions improve.

I also claim that account undercapitalization is the reason number ONE why most traders lose money.

To educate further, I recommend a simple "Account Undercapitalization" google search.

I'll finish with a small paragraph from the Tomasini/Jaekle's book (the one recommended on this forum), which I just started reading a few days ago. I don't need to mention that I agree 100% with the following text.

"The average tolerance of a drawdown for most professional traders and money managers ranges from 20% to 30%. Let's say that a drawdown of 10% is a wonderful accomplishment while a drawdown of 30% is much more painful and worrisome. A drawdown of 40% to 50% would be unbearable for most market players."

Here's a bit of math to quantify the difference between 20% and 80% drawdown.

If one is 20% in drawdown, i.e. the account is at 0.8 of the previous peak balance, the account needs to grow 25% ((1/0.8 -1) * 100%) just to recover.

If one is 80% in drawdown, i.e. the account is at 0.2 of the previous peak balance, the account needs to grow 400% ((1/0.2 -1) * 100%) just to recover.

Now, 400% is some SERIOUS growth. But things are even worse than that. If you would like to keep the remaining 20% of capital, and not continue gambling, you would need to adapt risk management to the new circumstances. Because your account is now 5 times smaller than before, you would need to use smaller margin/leverage/position sizes. 5 times smaller. And then profit 400% with such a small leverage.

So, in my book, the account that is 80% in drawdown is already ruined, and it's pretty safe to say that it can't possibly ever recover. Unless you're EXTREMELY lucky, of course. But, if you're so lucky how the f*** have you managed to lose 80%?

To finish the topic, I'd say: model for 10-20% drawdown, then expect 20-40% in the live trading. Don't go over 40% under no circumstances, rather throw in the towel and go back to the drawing board.

I see where you are coming from but we have to take into account the lot size per trade. If a trader is ready to tolerate 80% drawdown based on past data, the the individual most probably will be trading higher lots compared to the person with a 20% drawdown tolerance, assuming they are trading the same system. And there is no point in reducing margin and leverage requirements. I believe when you are setting out to trade a strategy and you have done your homework, you should know your statistical expectations. These statistical expectations should inform your risk parameters. You were ready to tolerate an 80% drawdown because the numbers said you can come out of that based on your starting margin and leverage settings.
Again the coming out of a drawdown part, yes the one who has a higher risk tolerance will need to climb out with a 400% return but remember the individual is trading higher lots and as such will take the same number of trades and the same number of wins as the one in the 25% hole to make it back to break even.

Once again nicely explained, and I really like your contributions. Still, be careful.

Is 80% what you have modelled for, or what you would endure if need be (but you modelled for much lower drawdown)? If former, I think you're in a world of pain. If latter, then I can agree with you.

Put another way, if excessive leverage brought your account to only 20% of previous value, and if you continue applying the same position sizes, your risk is now 5 times bigger. While you're right that only such a big risk would ever stand a chance to bring your account back to the previous balance, in reality you're probably just a losing trade or two away from a margin call. The leverage was too big previously, but after 5 times amplification it is simply devastating.

I have modeled for a 50% drawdown. Based on my 3 years in the market I know I can easily take 70-80% if the losses are within my statistical expectation. Forex is a passing interest for me. I have plans of moving into other areas of finance but forex trading seems to ground me in the world of now, so I cant let go.

If I run a backtest or a WFO and based on my estimation I can expect to lose 250 dollars and I start trading and actually lose that 250 dollars I would have to say everything is within statistical expectations. Again it comes down to how much you are ready to lose.