Drawdown

What it is

Drawdown is the fall from your account's highest point to its lowest point after it. Max drawdown is the largest such fall.

Losses need bigger gains to recover: down 10% needs about +11% to get back, down 25% needs +33%, and down 50% needs +100%. That's why small risk per trade matters so much.

How to spot it

• Your equity curve's dips below its previous highs.
• Losing streaks are normal: at a 50% win rate, five losses in a row will happen regularly over enough trades.

How to use it

• Set a maximum risk per trade that keeps a normal losing streak survivable.
• Have a rule for cutting size (or pausing) after a set drawdown.

Common mistakes

• Increasing size to win back a drawdown quickly.
• Not planning for losing streaks, then abandoning a sound strategy during one.

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