Definition. The decline in account value from its peak to its lowest point before a new high is made.
How it works
Drawdown is measured in money or as a percentage. Maximum drawdown is the largest such decline in the period studied.
Example
An account grows to 10,000, falls to 8,500 and only then exceeds 10,000. The drawdown is 1,500, or 15%.
What to watch out for
Every method has drawdown periods. It's important to know their typical size and to have a plan for a tough patch. A long drawdown is also a psychological burden.
You'll find the full explanation with graphics, examples and exercises in the 🧘 Trader's body and mind space, and its use in the live market in the 🔴 Live Room. Both are available to Club members (in Polish).
