Understanding Drawdown: The Key to Smarter Risk Management


In trading, drawdown is the reduction of your account equity from its peak to a trough before a new peak is achieved. It shows how much your account has declined during a losing streak.



Why does it matter?Because knowing your drawdown helps you manage risk and avoid emotional decisions that can wipe out profits.



Types to know:


Absolute Drawdown: The difference between your initial deposit and your lowest point.Maximal Drawdown: The largest peak-to-trough decline during your trading period.Relative Drawdown: Maximal drawdown expressed as a percentage of equity.What’s a healthy drawdown?There’s no one-size-fits-all, but keeping your maximal drawdown under 10% is a good benchmark for sustainable trading.



Managing your drawdown means managing your risk, protecting your capital, and building a stronger trading mindset.



What’s your approach to handling drawdowns? Share your thoughts below!

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