Drawdown is the most honest number in trading. It measures how much you've lost from a peak — and learning to expect it is what separates traders who survive from those who don't.
What drawdown is
A drawdown is the decline from a high-water mark in your account to a subsequent low, expressed as a percentage.
- Account peaks at $10,000, falls to $8,000 → a 20% drawdown.
- It only "ends" once you make a new equity high.
The brutal math of recovery
Losses and the gains needed to recover them are not symmetric:
- A 10% loss needs ~11% to recover.
- A 25% loss needs ~33%.
- A 50% loss needs a 100% gain just to get back to even.
This is exactly why capital preservation beats chasing returns — and why over-sizing is so dangerous.
Drawdowns are normal
Even excellent strategies have losing streaks. A string of losses is not a sign your edge is broken; it's a statistical certainty over enough trades. The question isn't whether you'll have a drawdown, but whether your position sizing lets you survive it with your capital — and confidence — intact.
How to manage it
- Risk small per trade — a fixed, small percentage keeps any losing streak bounded.
- Set a daily/weekly loss limit in your trading plan and honour it.
- Don't size up to "win it back" — that's how a manageable drawdown becomes a catastrophic one.
You can't avoid drawdowns. You can only make sure they're survivable. That choice is made in your position sizing, before the streak begins.
Education only — not financial advice.