Drawdown Management
Protecting capital during losing streaks is what separates professionals from amateurs. Learn how to survive drawdowns and come back stronger.
The Math of Drawdowns
Drawdowns are not linear. A 50% loss requires a 100% gain just to break even. This is why preventing large drawdowns is crucial.
| Drawdown | Required to Recover | Estimated Trades |
|---|---|---|
| 5% | 5.3% | ~5 wins at 1% |
| 10% | 11.1% | ~10 wins at 1% |
| 20% | 25% | ~20 wins at 1% |
| 30% | 42.9% | ~35 wins at 1% |
| 40% | 66.7% | ~55 wins at 1% |
| 50% | 100% | ~70 wins at 1% |
As drawdowns deepen, recovery becomes exponentially harder. This is why the 1% rule and proper risk management are non-negotiable.
Drawdown Action Plan
5% Drawdown
Review & Reduce
10% Drawdown
Pause Trading
15% Drawdown
Full Reset
20%+ Drawdown
Seek Guidance
Preventing Deep Drawdowns
Do
- •Stick to 1% max risk per trade
- •Only trade A+ setups on H4
- •Set daily and weekly loss limits
- •Journal every trade
- •Take breaks after losses
Don't
- •Increase position size after losses
- •Revenge trade to recover losses
- •Trade more during losing streaks
- •Ignore your trading plan
- •Trade tired, angry, or distracted
Recommended Loss Limits
Daily Loss Limit
2%
Stop trading for the day after 2 losses at 1%
Weekly Loss Limit
5%
Step back if you hit 5% for the week
Monthly Loss Limit
10%
Full pause and review if reached
Recovery Mindset
"The goal after a drawdown is not to make back the money quickly. It's to trade well and let the profits come naturally."
Focus on Process, Not Outcome
Each trade should follow your plan regardless of recent results
Reduce Size, Not Quality
Trade smaller positions but maintain high standards for setup quality
Accept That Losses Are Normal
Even the best traders have losing streaks. It's how you handle them that matters.
Remember
"Survival is success."
Protect capital first, profits second. A trader who preserves their account lives to trade another day.