The maximum drawdown has severe limitations when it comes to measure risk and should be used with cautions. I recommend you reading this paper (http://alumnus.caltech.edu/~amir/mdd-risk.pdf) and the references therein. In my opinion, Measure 1. (The historical drawdown) has little value as a descriptive statistics and even less value as a predictor of future drawdowns because it is a single number derived from a single sequence of trades and it is going to have a large error associated with it. Using Monte Carlo simulation, you get the expected distribution of the maximum drawdown from which you can derive confidence intervals on the Maximum Drawdown. This is better as a descriptive statistics (for quoting past performance) but not a very good predictor of future drawdowns. For a Brownian Motion, we can compute an analytical measure called the Expected Maximum Drawdown (see Magdon-Ismail and Amir Atiya paper) only knowing the average trade return and their standard deviation. Although theoretical, I found this paper interesting because : - It shows that the max drawdown increases over time (even for a profitable strategy) : In other words, a deeper drawdown than you already experienced is always ahead of you ! - It provides a scaling law which allows to compare MD quoted over different time intervals, resulting in "normalized" max. drawdown and Calmar ratio measures - It shows the link between the maximum drawdown and the Sharpe ratio of a strategy.
It is wise to change time to time your risk/reward ratio (use streak calculator and you'll understand why). And the most important thing is to do it chaotically. No need to follow some equation or rule, because from the standpoint of average distribution you are always at loss. I use generator of random numbers (I found it in Hotforex platform, hope your MT4 also have that) with the limit of 40% as max acceptable drawdown. Good luck with your trades.