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Drawdown

Surviving Drawdown: The Battle Between You and the MarketThe Battle Between You and the Market Every trader, no matter how seasoned, eventually encounters the nemesis of every strategy: drawdown. It’s that dreaded phase where the market isn’t quite ready to move in the direction of your bias, and your account balance starts to bleed. The key to surviving drawdown isn’t just about protecting your capital—it’s about protecting your mind. The mental toll of seeing your carefully plotted trades go red can lead to fatigue, impulsivity, and, in some cases, abandonment of your well-thought-out plan. But here’s the reality: drawdowns are part of the game. The market doesn’t move on your schedule, and it certainly doesn’t care about your bills, goals, or aspirations. Harsh, but true. In the world of trading, few experiences are as daunting as facing a drawdown. This period, where the market refuses to move in the direction of your bias, can feel like an endless slog through thick mud. It's during these times that trader fatigue sets in, and the mental strain can become overwhelming. But surviving a drawdown isn’t just about weathering the storm; it’s about maintaining focus, sticking to your plan, and emerging stronger on the other side. Understanding Drawdown: A Necessary Evil Drawdowns are an inevitable part of trading, a reality that every trader must confront. They occur when your account equity declines from its peak, often resulting from a series of losing trades. This is not a reflection of your skills or judgment; rather, it’s a natural fluctuation in the market. Accepting this fact is crucial for maintaining a balanced mindset. It’s easy to get caught up in the emotional turmoil that accompanies a drawdown. You might start questioning your strategy, second-guessing your decisions, or even feeling a deep sense of fatigue that clouds your judgment. Recognizing that drawdowns are temporary and often necessary for long-term success is the first step towards mental fortitude. The Weight of Trader Fatigue Trader fatigue is real, and it can manifest in various forms: diminished focus, irritability, and an overall lack of clarity in decision-making. As the drawdown drags on, it’s common to feel like you’re fighting an uphill battle, grappling with both the market and your own psyche. The key to overcoming this fatigue is to remain steadfast in your commitment to your trading plan. Embrace the discipline that brought you to trading in the first place. Remember, every successful trader has weathered their share of drawdowns. It’s not about the setbacks; it’s how you respond to them that defines your journey. Stick to the Plan: The Importance of Discipline When faced with a drawdown, the temptation to abandon your trading plan can be strong. You might be lured into making impulsive trades or deviating from your established strategy in an attempt to “make back” your losses. This is a perilous path. Instead, focus on the process. A well-defined trading plan serves as your guiding compass, ensuring that you stay on course, even when the waters are choppy. Utilizing Alerts: The Power of TradingView One of the most effective tools in your trading arsenal is the alert feature available on platforms like TradingView. Set alerts for key price levels or indicators that align with your trading strategy. This simple act allows you to step away from the charts, minimizing stress and providing the mental space you need to reset. By using alerts, you can disengage from the constant fluctuations of the market without losing touch with your strategy. Instead of staring at the screen, waiting for the market to conform to your bias, you can live your life—confident that you’ll be notified when it’s time to reassess your position. Embrace Patience and Mindfulness During a drawdown, patience is not just a virtue; it’s a necessity. The market operates on its own timetable, and as traders, we must learn to respect that. Implement mindfulness techniques to cultivate a sense of calm and clarity. Engage in practices like meditation, deep breathing, or even short walks to recharge your mental energy. This approach allows you to view the market from a fresh perspective, reducing the noise of frustration and fatigue. Cultivating a mindset of patience will enable you to remain focused on your long-term goals rather than being derailed by short-term setbacks. Keeping Perspective: The Long Game Finally, keep in mind that trading is a marathon, not a sprint. Drawdowns, while difficult, are often precursors to periods of growth and profitability. By maintaining perspective, you can navigate these challenging times with resilience. Celebrate your wins, no matter how small, and remember that every setback brings with it valuable lessons. Surviving a drawdown is an essential part of the trader's journey. Embrace the process, stay disciplined, and utilize the tools at your disposal—like TradingView alerts—to ease the mental burden. By maintaining focus and perspective, you can emerge from the drawdown not just intact, but stronger and more equipped for future challenges. Remember, in the world of trading, persistence pays off. The key to success lies in how you respond to the inevitable ups and downs. Stay the course, and the markets will eventually align with your bias once more.
Education
by TLTurnerTV
Drawdowns: The Silent Mentor Behind Every Great TraderYou know the feeling. You place a trade, and instead of it taking off in your favor, it immediately starts slipping into the red. It happens almost every time, especially if you’re a swing trader. And for some, this drawdown can last for days, weeks, or even months. Whether you're a day trader dealing with quick losses, a swing trader battling long-term dips, or an automated systems trader trusting your system to pull through, drawdowns are part of the game. The real test is how you handle them. Drawdowns don't just test your trading strategy—they test your emotional resilience. They bring out everything you’ve been avoiding in the quiet moments of success: your frustration, your impatience, and that creeping urge to overtrade or take on more risk to recover faster. But here’s the truth: every trader goes through it. The question is, will you let it break you, or will you let it refine you? Let’s start by acknowledging that no matter what kind of trader you are, drawdowns are inevitable. However, the experience varies based on your trading style: Swing Traders: You’re often in trades for days, weeks, or even months. Drawdowns for swing traders can feel particularly painful because the waiting game lasts longer, and you have to watch your positions suffer for extended periods of time. Every day the market doesn’t go your way feels like salt in the wound, which can lead to impatience and frustration. Day Traders: For you, drawdowns happen quickly. They sting but are over within minutes or hours. The upside is that you have frequent opportunities to recover, but the downside is that multiple quick losses can quickly spiral into emotional exhaustion. Automated Systems Traders: Drawdowns are practically baked into your system. Your strategy will go through periods of underperformance, and it takes faith in your backtesting and system to stay calm during these equity dips. Automated systems traders rely heavily on data and probabilities to keep going when the human instinct is to intervene and tweak the system. Regardless of the type of trader, the emotional reactions during a drawdown are largely the same: frustration, anger, and the urge to do something—anything—to make the pain stop. But this is where most traders go wrong. The more emotional you become, the worse your decisions get. The Universal Lesson from Drawdowns: Emotional Mastery Every time I go through a drawdown, whether it's small and quick or stretched out over weeks, the same battle begins. The mental anguish starts, and I have to fight the urge to increase risk, take revenge trades, or break my rules to “get back” at the market. And I know I’m not alone—this is the trap every trader faces. Managing the Emotional Rollercoaster The hardest part of a drawdown isn’t the financial loss; it’s the emotional toll it takes on you. Here are a few hard lessons I've learned from navigating these emotional storms: Stay Calm: One of the most important things to do when you're in a drawdown is step away from the screen. Seriously. Walk away, reset your mind, and remind yourself of your strategy. Panic trading to recover losses almost always makes the situation worse. Stick to Your Plan: During a drawdown, your trading plan is your lifeline. If you’ve backtested your system and trust your edge, you have to rely on that, even when you want to break the rules. For swing traders, this means sitting through those painful days or weeks of drawdown. For day traders, it means not overtrading to make up for losses. For automated traders, it’s about trusting the process even when the system isn’t performing at its best. Accept That Most Trades Start in the Red: Here’s a reality most traders don’t think about. Nearly every trade starts in a drawdown. It’s a rare occasion when a trade instantly moves in your favor. Whether you’re swing trading or day trading, it’s normal for a trade to dip before finding its direction. Understanding this will help you manage the emotional spike that comes with seeing red right after entering a position. Drawdowns are the ultimate teacher in trading. They expose the cracks in your emotional armor and show you where you need to improve. Here are the key lessons I’ve learned: 1. Patience and Discipline Are Everything I can’t emphasize this enough. Patience is a trader’s superpower, especially for swing traders. Watching a trade go against you for days or weeks without panicking is tough, but it’s necessary. The longer your timeframe, the more patience you need. This is especially important when your strategy is sound, and the probabilities are in your favor—trust the process. 2. Understanding Probabilities Reduces Emotional Reactions If there’s one thing that can save you from self-destruction during a drawdown, it’s understanding probabilities. When you think in terms of probabilities, you realize that a drawdown is not a personal attack from the market—it’s a statistical inevitability. For instance, if you know that your strategy wins 60% of the time, you’ll understand that those 40% of losses aren’t signs of failure. They’re just part of the overall probability game. 3. Trusting the Process Confidence in your system is crucial, particularly for automated systems traders. Your system might be in a drawdown now, but if you’ve backtested it thoroughly, you know the drawdown is temporary. It’s tough to sit through weeks of underperformance, but that’s the reality of trading with a strategy that works over time, not over every single trade. Trust the data. 4. Drawdowns Always Test Your Risk Management Your ability to survive a drawdown is a reflection of your risk management. During a drawdown, it’s tempting to increase your risk to recover losses faster. But that’s exactly what you shouldn’t do. Risk management is what keeps you in the game long enough to come out the other side. It’s better to reduce your position sizes during a drawdown and ride it out than to blow up your account trying to recover quickly. Practical Tips for Managing Drawdowns 1. Build a Drawdown Plan Before you face your next drawdown, create a plan for how you’ll handle it. Will you reduce position sizes? Will you pause trading if your account dips by a certain percentage? Will you stick rigidly to your system no matter what? Having a plan takes the emotional decision-making out of the equation when things get tough. 2. Diversify Your Learning with Strategy Games Games like poker, chess, and even blackjack teach you a lot about probabilities, patience, and decision-making under pressure. Poker, in particular, mirrors trading in that it’s all about playing the hand you’re dealt and managing your emotions in the face of uncertainty. 3. Visualization Is Key Visualization is a powerful mental tool, especially during drawdowns. Spend a few minutes each day visualizing yourself handling the drawdown with calm and confidence. Picture yourself making rational decisions, sticking to your plan, and trusting the process. This practice reinforces the behavior you want to see when the pressure is on. Drawdowns Are the Ultimate Teacher Drawdowns are painful, frustrating, and emotionally exhausting. But they are also the best opportunity you’ll get to grow as a trader. They teach you about patience, discipline, and the importance of risk management. They force you to confront your weaknesses and develop emotional mastery. The next time you find yourself in a drawdown, remember: it’s not the drawdown itself that matters, but how you respond to it. Stick to your strategy, manage your risk, and trust the process. Surviving drawdowns is what separates the successful traders from the rest. Embrace the lessons they teach, and you’ll come out stronger every time.
Education
by TheFxAce
9
This Bitcoin Dump Is Normal - But For How Long?In this analysis I want to take a look at the BTC_ATHDRAWDOWN indicator, which tells us how much percent BTC is trading under the current all-time high. Every time that BTC makes a new all-time high this indicator reaches a value of 1. As seen on the chart, BTC has seen a lot of big drops during bull-markets. Most of these drops have reached the yellow area (which reaches from -20% to -27%). This is "normal" and not something we have to worry about. What we have to worry about is when BTC goes from 1 to something below 0.27. Historically, this as signaled that either the cycle is over or that we're in for a prolonged period of bearish price action. Like I mentioned in my previous analyses, bulls have to start buying again in the very near future. If BTC continues bleeding like it does now there's a high probability of dropping even more.
BShort
by FieryTrading
2
WHAT IS TRADING ACCOUNT DRAWDOWN | 3 Types Of Drawdown Explained In my videos, I frequently use the term "trading account drawdown ". Many of you asked me to explain the meaning of that term and share some examples. What is Trading Account Drawdown? The account drawdown is the highest observed loss from the highest value of the deposit to the lowest value of the deposit at a certain period of time. Imagine you started to trade with 10,000$ account. At the end of the year, your account size reached 15,000$ . However, at some point through the year the deposit value dropped to 6,000$ . It was the absolute minimum for the one-year period. At some point, your net loss was -4,000$ or 40% of your account balance. The account drawdown is 40% . ❗️Knowing the account drawdown is very important for the risk assessment of the trading strategy. Usually, 50% and bigger drawdown signifies an extremely high risk. 3 Types of Drawdown 1. Current drawdown - a temporary drawdown associated with the negative total value of opened trading position(s) at present. Once you start trading with 10,000$ deposit, you open several trading positions. Being opened, with the constant price movements, your potential gains fluctuates from positive to negative. For example, with 3 active trades : EURUSD ( -500$ at present); GBPUSD ( +200$ at present); GOLD ( -100$ at present) Your current account drawdown is -400$ or 4% of your deposit. 2. Fixed drawdown - the negative value of the closed trading position(s) at present for a certain period of time. While some of your trades remain active, some are already closed . Imagine the same deposit - 10,000$ . On Monday you opened 6 trades, 2 still remain active ; 4 are already closed . Your total loss from your closed trades is -500$. Your fixed Monday's drawdown is 5%. 3. Maximum Drawdown - the maximum observed loss from the highest value of the deposit before a new maximum is reached. Starting to trade with 10,000$ you are already trading for 5 years . Your account were growing rapidly and at some moment it reached 25,000$ . Then the recession started. You faced a dramatic loss of 12,500$ before you started to recover. That was the maximum observed loss for the period. Your maximum account drawdown was 50% . ❗️Different types of drawdown give a lot of insights about a trading strategy. Its proper assessment will help to spot a high risk strategy and to find a conservative one. Constantly monitor your account drawdown and always check the numbers. What is your highest account drawdown?
OANDA:XAUUSDEducation
by VasilyTrader
1
Bitcoin All Time High Drawdown - Bottom has been in.This chart shows the amount price has dropped from all time high to all time low during each bitcoin market 'cycle'. Each cycle's price action obviously being fueled by Bitcoin's Proof of Work Halving. As you can seek, the bottom trendline (market bottoms) shows a 4 degree slope upwards, with the top trendline (market tops) having a slight slope downwards. Both signify a reduction of percentage dropped in price from cycle All Time High. In short (heh), what I mean to say is: a decade of data points are showing that this is a great area to be loading up for the next crypto bull run. Don't let the market FUD cloud your vision. Stay savvy. As always, this is not financial advice.
BLong
by D4NKM4CH1N3
17
Lookback into a Yield Seeking Analytics: EUR Hit TargetDear Investors, Goal I often hear: "... but I learned from my mistakes." This phrase might be a kind emote of forgiving yourself, but you can learn much more from your successes. Today, I want to write more about an example of a success because I learned from it. I want to explain what I learned from this take profit and conclude the analytics because I know most of you never return to how an analytics you read concluded. In this follow-up analytics, I'll extend the chart of the previous setup and communicate the original data I didn't specify in that analytics. I also want to have this written because some of you prefer reading over watching my videos. In the meantime, I've released an open-source indicator on TradingView, and you'll see how this indicator could have extended or contradicted the analytics. News & Sentiment Analytics The initial analytics started with news analytics. I believe news can overwrite technical indicators. So, I usually begin my analytics with the news. For this purpose, I wrote some natural language processing algorithms. Some of you wrote to me, that you don't believe AI can outperform humans in supply/demand location and liquidity detection. Perhaps, that's true, but the fact is, while you commit your attention to one market and limited news, AI simultaneously processes hundreds of thousands of news from thousands of news agencies. From all these data, I emphasized the following in the analytics: "Beyond technicals, the European Central Bank (ECB) has been cautious in raising interest rates to combat inflation, in contrast to the US Federal Reserve's more aggressive tightening cycle. This divergence in monetary policies has made the USD more attractive to yield-seeking investors." I often extend news analytics with sentiment analytics. I could have written any combination of news, but I gave one as an example where sentiment analytics estimated a heavyweight. Technical Analytics & Chart Patterns In the video analytics, I used daily candles because I wanted to protect your attention from intraday noise. Nevertheless, the price action happens to be smooth. So, in this idea, I used 4-hour candles to better show the projection of how the price went into the take profit area. Once I got an idea about a possible bearish trend from news and sentiment, I added my humble technical analytics knowledge to the setup. I noted the rising channel chart pattern that statistically, often breaks downward. You find the dotted purple trendlines on the chart. Furthermore, I calculated a demand zone between the two blue trendlines. I guessed the price could seek demand somewhere in this area. That's why you saw a falling arrow in the analytics. The trendlines themselves are the results of candle analytics, which is part of my technical analytics. Indicators In the signal idea, you couldn't see my Adaptive MFT Extremum Pivots indicator because I released this TradingView script after my video analytics. However, this script wasn't necessary to get a profitable vision. I added it to the update to note how the level where the price managed to fall aligns with the S3 support level, and the demand zone news-sentiment-pattern estimated aligns with the zone where the supports (S1-S3) are located. You can read the precise values in the indicator's table in the bottom right corner of the chart. Results: +2.64% ROI, -0.18% drawdown, Trail Profit Eventually, I added date and range computing arrows to the chart to show the results. It says a +2.64% profit over 45 bars (9 days, 12 hours). You can see the timestamp of the sentiment analytics above the candles: 01 December. You can also read the sentiment analytics idea in TradingView. See the relevant ideas. I used a stop loss at $1.102. In the worst-case scenario, I'd book a -0.18% drawdown, but the price never hit the negative limit. I don't specify the future price in this idea because I moved my stop loss down to act as a trail profit until the price decides to reverse, and I booked my profit. It's not an investment advice. I don't claim mine was the only possible setup to take a profit from the price action. Historic results don't guarantee future returns. No indicator or analytics is inherently more superb than the others. Do your research. I only hope you learned a few practices from this idea you can use in your analytics, too. Kind regards, Ely
by Elysian_Mind
Mastering Drawdowns: Strategies for Resilient TradingEvery trader, novice or seasoned, knows the sting of drawdowns. While they're inevitable, managing them effectively is key to trading success. Even the most renowned traders face drawdowns. Consider Richard Dennis, the legendary Turtle Trader, who transformed a mere $1,600 into over $200 million. Surprisingly, he experienced drawdowns of over 80% at times so I've read :). This might seem outlandish to some but perfectly normal to others. His approach worked well for his personal trades, but when he tried managing others' money via a hedge fund, it was a different story look it up its a good story for your mindset. Ultimately, it isn't the magnitude of the drawdown that's critical. It's your psychological response to it that dictates your success in handling it. Here's how I've personally navigated through drawdowns over the past 14 years: Focus on the Percentage, NOT the Amount: Previously, seeing the monetary loss during drawdowns sent me spiraling into panic and fear. The root problem? Focusing on the dollar amount, leading to emotionally charged decisions. Shifting focus to the percentage value changed everything. A 10% drawdown is more digestible mentally than a $10,000 one. This shift minimizes negative emotions and consequential mistakes. Confidence in Your Trading System: The depth of drawdown you can stomach ties directly to your trust in your trading system. If you know your metrics and trust your approach, you'll be more resilient. Confidence-building measures include thorough backtesting, simulation trading, and initiating with smaller live trades. Diversify Trading Accounts Based on Risk: I've always maintained three types of accounts: low-risk (60% capital, <10% drawdowns), moderate-risk (30% capital, <20% drawdowns), and aggressive (10% capital, high drawdown limits). This structure is possible thanks to the faith I have in my trading approach. Prioritize Mental & Physical Wellbeing: Trading is grueling, both mentally and physically. To stay sharp, you must be in peak condition. Regular exercise, like my 12-year practice of Muay Thai, offers stress relief. Meditation, another tool in my arsenal, helps maintain calm and focus. Trading is a journey, with its fair share of ups and downs. What I've shared is my compass through the stormy seas. Hopefully, it lights up your path too. Happy trading!
Education
by TheFxAce
16
BNBUSDT Potential Bear ActionPotential bearish scenario to this asset. Price action is suggesting a further drawdown to the 239USDT demand region as the actual pullback seems to be accomplished. The reciprocal AB=CD pattern projection is reinforcing this idea, as a Head and Shoulders pattern is likely in formation. Thus, on this hypothetical 30m scenario, the price can made a ranging interacting w/ the neckline. Chaikin Money Flow hidden divergence & below zero + Awesome oscillator twin peaks in formation + Fisher Transform bear crossing.
Short
by firmestudio
4
Metrics: DrawdownDrawdown is the metric used to measure the decline in a performance curve relative to a previous peak. It represents the distance between a maximum point in the capital curve and its subsequent minimum. This indicator can be visualized in relative terms (%) or absolute terms (€, $...). In my opinion, I always recommend using relative data as it makes the analysis more intuitive. From this concept arises the maximum drawdown of a strategy, which indicates the maximum percentage loss between a peak and a trough over a specific period of time. This period can range from the last month to the entire historical series, known as the drawdown from origin. Therefore, drawdown is used in the risk assessment of a system, both on its own and in combination with other related measures that provide a higher degree of information.
BITSTAMP:BTCUSDEducation
by JRiquelmeTrading
1
VIX/VVIX Divergence before large drawdownsJust happened to be playing with a few things on tradingview today, thinking of new ways to identify trade opportunities. I often have to keep reminding myself to zoom out to see the bigger picture. This is one of those instances where I might have stumbled upon something useful for very long term trade trends. As many know, VIX is an extremely useful indicator of market sentiment, it also signifies part of what makes up extrinsic value of options contracts. On the longer term time frame, you can see in a bull market volatility slowly compressing lower and lower. Lower highs, lower lows. Eventually, that trend starts to reverse as more and more large players maybe begin to take profits and go short, and more options hedging happen towards the downside. VVIX is a further still derivative of that. It's the measure of volatility of volatility. What I did today was take VIX and divide it by VVIX and see what pattern emerged. At a glance, it's not far off VIX by itself, but, I did notice that weeks or even a couple months before a large market downmove, it gives a little more advance warning that a big sell off was imminent. A solid warning is the lowest low followed by two higher lows, as seen here: If I instead plot VIX by itself, you see a double, maybe triple bottom at near enough the same low before you get a higher low. In the case of the second half of 2018, there actually wasn't an advanced warning at all: But, what VIX by itself does show, that VIX/VVIX did not, is a lower high when the market found bottom in October/November 2022. VIX showed a lower high, VIX/VVIX shows the highest high at that point. So, always worth glancing at both on a long term chart if you're looking for very long term bets on the market and trying what normally is considered a fool's errand to call the tops and bottoms of every bear and bull cycle. It might still be a fool's errand, but maybe this helps some of us get a little closer to being able to pull that off. With that being said, we have just set a new low in both VIX and VIX/VVIX for the year, even though we just had a down week (6/20-23/2023), I'm not convinced we stay down for long until maybe I see such a pattern appear again with higher lows appearing in VIX/VVIX.
TVC:VIX
by dieseldub
Educational: Relative Drawdown vs. Absolute DrawdownUnderstanding the concepts of relative drawdown and absolute drawdown is crucial for effective risk management and evaluating the performance of trading strategies. In this publication, we will delve into the understanding of both relative drawdown and absolute drawdown. 🔷 Relative Drawdown: (Sometimes referred to as equity drawdown) Relative drawdown is like looking at how much your money went down compared to the highest amount of money you had in your piggy bank before it started going down. Relative drawdown measures the decline in equity relative to the previous peak value, expressed as a percentage. It provides a proportional view of the drawdown in comparison to the highest equity point achieved. Traders often utilize relative drawdown to assess the performance of their trading strategies over time. By calculating the relative drawdown, traders can determine the percentage loss from the peak and evaluate the strategy's ability to recover from losses. For example, if a trading account reaches a peak equity of $10,000 and subsequently experiences a drawdown with a low point of $8,000, the relative drawdown would be 20% ($2,000 decline divided by $10,000 peak). A higher relative drawdown indicates a more significant loss relative to the previous peak, potentially highlighting the need for adjustments in risk management or strategy refinement. 🔸Relative drawdown provides traders with insights into the consistency of their strategies and the extent of losses experienced during adverse market conditions. It helps them compare the drawdowns of different strategies or trading systems using a percentage-based metric, enabling a better understanding of risk exposure and the ability to set realistic expectations. 🔷 Absolute Drawdown: (Sometimes referred to as balance drawdown) In contrast to relative drawdown, absolute drawdown quantifies the actual monetary value of the decline in equity from the initial balance to low . Continuing from the previous example, if the lowest equity point during the drawdown was $8,000, the absolute drawdown would be $2,000. Absolute drawdown focuses on the actual amount of money you lost from the starting point to the lowest point. It helps us understand the total decrease in money without comparing it to any percentages or ratios. 🔸By understanding the absolute drawdown, traders can assess the real monetary value lost during a drawdown period, which helps in making informed decisions regarding position sizing, risk allocation, and overall portfolio management. It also assists in evaluating the effectiveness of risk management strategies in terms of limiting losses during drawdowns. NB: It is worth noting that it is important to clarity when discussing balance base drawdown as the balance base drawdown can be calculated based on the starting balance of each day or trading session which in this case will have a drawdown calculated based on a dynamic balance as oppose to the static initial balance. ----------------- Relative and absolute drawdowns play a vital role in assessing the performance and risk exposure of trading strategies. While relative drawdown provides a percentage-based view of the decline in equity from the peak, absolute drawdown quantifies the monetary value of the loss. Traders should consider both types of drawdowns to effectively manage risk, set realistic expectations, and make informed decisions about their trading strategies. Remember, understanding and managing drawdowns are key elements of long-term success in the trading world. It's important to understand that drawdowns are a natural and inevitable part of trading. No trader, no matter how experienced or skilled, is immune to drawdowns. Here's a simplified explanation of why drawdowns occur and why traders should not be discouraged by them: When you play a game, there are times when you might make a mistake or encounter challenges that cause you to lose points. Similarly, in trading, the market can sometimes move in a way that goes against your expectations or trading strategy, causing temporary losses in your trading account. This decline in the value of your account is known as a drawdown. Drawdowns occur due to various factors, such as changes in market conditions, unexpected news events, or even errors in decision-making. Markets are influenced by many participants, and their behavior can be unpredictable at times. Therefore, it's natural to experience periods of drawdown. Traders should not be discouraged by drawdowns for a few important reasons: 🔸Learning Opportunity: Drawdowns provide valuable lessons for traders. They offer insights into potential weaknesses in their trading strategies or areas where they can improve their risk management. By analyzing drawdowns, traders can refine their approach and enhance their trading skills. 🔸Long-Term Perspective: Successful traders understand that trading is a long-term game. Drawdowns are often temporary and can be followed by periods of profitability. By maintaining a long-term perspective, traders can ride out drawdowns, knowing that their overall success is determined by their ability to stay focused, adapt, and stick to their trading plans. 🔸Risk Management: Drawdowns highlight the importance of proper risk management. Traders who implement effective risk management techniques, such as setting stop-loss orders, diversifying their portfolios, and managing position sizes, can limit the impact of drawdowns on their overall trading performance. 🔸Psychological Resilience: Drawdowns test a trader's emotional resilience. Successful traders understand that emotions like fear or frustration can cloud judgment and lead to impulsive decisions. By developing emotional resilience and maintaining a disciplined mindset, traders can navigate drawdowns more effectively and make rational decisions based on their trading plans. 🔸Consistency is Key: Consistency in trading is crucial. Drawdowns are part of the journey to profitability. Traders who remain committed to their strategies, continue learning, and adapt as needed have a higher likelihood of success over the long run.
PEPPERSTONE:ETHUSDEducation
by ChristopherDownie
2
RISK less with Drawdowns and more with Winning StreaksA drawdown is a period of decline in the value of a portfolio. This is where you take a number of trades, and the losses drop the portfolio at a marginal level (if you know what you’re doing). During these times, the market is typically more volatile (jumpy) and unpredictable. And so you have a higher chance to risk money in unfavourable times. Risk less with drawdowns When your portfolio drops 6%, 8% or even 11% – This is where you’re not sure when the market will become more favourable. This is the time where you decide to risk less money per trade. You would drop the risk from 3%, 2% to 1.5% or even 1%. Then keep trading until the markets pick up and start to favour your portfolio… Once you’re out of the drawdown then… Risk more money with the winning streak During the winning streaks, the market is typically more stable and predictable, and the chances of making a profit are higher. You can then pump up the risk back to 2% or 3% (if you’re a risky biscuit). When do you do this? When your portfolio is either BACK to an all-time-high. Or when you can see the market has broken out of the sideways consolidation and volatile period. Risk management is an important aspect of successful investing, and adjusting the amount of money being invested based on market conditions is one strategy that can help investors achieve their financial goals. By risking less money during drawdowns and more money during winning streaks, you as the trader can lower your potential losses and maximize your potential gains.
TVC:SA40Education
by Timonrosso
Bullish Near-Term OutlookBesides the macro-economic outlook I've described in other ideas, which really are the foundation of equity moves right now, SPY is showing both a cup-and-handle and broadening downward wedge, both of which are bullish indications from a technical perspective. It's palpable that sentiment has changed across social media, and it makes sense that a bear market wouldn't be "up=down=up=down" forever. I expect a slow melt up and a second drawdown when the fed pivots in reaction to lagging negative economic data later in 2023. Probably late, like usual. As always, no one ever knows for sure and your investment strategy should reflect that uncertainty. InTheMoney
AMEX:SPYLong
by InTheMoneyAdam
6
How To Handle And Minimise Your Losses in A DrawdownI want to cover different ways to handle yourself during a drawdown to minimise your losses. Minimise Drawdown Part #1: Lower your risk per trade There are times when the market will be in a bad market environment… This is when no matter whether you buy or sell, you end up just taking a whole bunch of losses. The first trick is to pinpoint when the market is in a bad environment. For me as a breakout trader, I wait for the main index to move in a sideways trend. This way, I know I have a medium to low probability of the trades to work out. If you can find out when the market is in a bad environment, then you’ll know when to lower your risk. In my case, I drop the risk from 2% per trade – down to 1.5%. If my portfolio continues to drop, I will lower the risk further to 1% per trade until the market rectifies itself. This is the first way to minimize your losses. Minimise Drawdown Part #2: Lower the number of trades you take You’ll know when the markets are looking S#@t all around. This is because the large stock markets tend to lead the emerging markets. And when this happens, the second best thing you can do is limit the trades you take. If you find you’re averaging around five to nine open trades at a time, it might be time to start cutting down. Because what if all nine trades end up to be losers, due to the bad market environment? Well you’ll find yourself down around 18% of your portfolio. So instead, limit the number of trades you’ll hold during the drawdown phase. Maybe it will four to five instead… Just remember that being neutral and holding cash is ALSO a trading position. Minimise Drawdown Part #3: Hedge your positions This doesn’t always work, but it has saved my ass a couple of times. When I find I’m long (bought) five stocks. And I see that the market has completely changed direction to the downside. I know that there is a higher chance that I’m going to get stopped out. So to limit my risk, I’ll immediately look at stocks that I can trade short (sell). For example, I am currently long four stocks. And all four stocks are in a the negative. So, in the last two weeks I’ve decided to short three resource stocks (as a hedge). This way, I’m now down only 3% of my portfolio rather than 5% since the drawdown… Minimise Drawdown Part #4: Other ways The other powerful way to control your drawdown is to lock in profits when the trades are going your way. You can think of it as a trailing stop loss. I personally often raise my stop loss when the market moves where the risk to reward is 1:1… This way I know I’ll lock in a gain, should the market turn against me. There are many ways you can adjust your stop loss including: • Trail the stop loss as the price moves further away from the trending Moving Average • Trail the stop loss after the market’s price moves a certain percentage • Trail the stop loss when you see volume starting to drop • Trail the stop loss when an indicator is oversold or overbought • Trail the stop loss after the market’s price moves to a certain risk to reward FINAL WORDS Drawdowns are inevitable. And you need to know how to manage your Drawdowns… You now have some ideas on how to handle your drawdowns better. Trade well, live free. Timon MATI Trader (Financial trader since 2003) Feel free to follow my socials below. I love writing about trading and sharing my 2 decade experiences.
JSE:J200Education
by Timonrosso
1
How Much to Recover After a Trading DrawdownA Drawdown is a drop in a portfolio value after one or more trades. It’s when the portfolio dips from the highest high. Once you’ve entered into the inevitable drawdown phase, you’ll need to know how much you’ll need to recover. That’s where the drawdown calculation comes in… The Drawdown Formula to recover after a portfolio drop Let’s use three examples of traders with drawdowns. Example #1: Timon is down 5% of his portfolio in the last three months. Example #2: Alex is down 50% of her portfolio in the last three months. Example#3: Artemis is down 76% of their portfolio in the last three months. Next we’ll need the Drawdown Formula Required gain = -1 Let’s put in three drawdown percentages to see what we need to recover to get our portfolios back to what they were… EXAMPLE #1: Timon’s drawdown = 5% Required Gain = – 1 = – 1 = 5.26% EXAMPLE #2: Alex’s drawdown = 50% Required Gain = – 1 = – 1 = 100% EXAMPLE #3: Artemis’s drawdown = 76% Required Gain = – 1 = – 1 = 316% In the above examples, I need to recover 5.26% of my portfolio to get it back to its highest level. While Alex and Artemis needs over 100% and 316% to return their portfolios to what they were. Now you know how to calculate what you need to recover after a trading drawdown. FINAL WORDS Do you now get that you need to take your drawdowns more seriously? With any business or venture, you should always be wary when you enter into a tough time. In fact, you should never be down more than 20% on your trading portfolio, business or in any other financial venture… Once you start going below 20%, it will take a heck of a lot longer to get back to what it was… That’s why this article is only part one… Trade well, live free. Timon MATI Trader (Est. 2003) Feel free to follow our socials below.
JSE:J200Education
by Timonrosso
LONG WAY TO THE BOTTOMMy theory is that we have a long way to go to reach the bottom of the market SP:SPX . Based on my previous post, which I have linked, we would have to reach some sort of support before coming back up. The current price I'm looking at is $2,191.86 . From the all time high in 2022 of $4,818.62 to that price is a 54% drop. See that the drawdowns of the past few recessions have been around 50%. This gives me more confirmation that my theory is true and we shall see how long this winter lasts!
SP:SPX
by jeanius_tech
Bitcoin Drawdown☣️ Looking at the Bitcoin drawdown, we can see that the drop in percentage terms has already surpassed the COVID-day drop. ❓ Will the drawdown reach the same level as December 3, 2018, with a drop of 84.22%? 📈 If that happens, the price would come in at the 0.382 Fibonacci projection at $10,190. 🎅 And it would be a big coincidence to happen in the same month of December. 📅 Another great coincidence is that the biggest drawdowns happened between the months of November/December/January/March. 🤔 So, theoretically, in the worst case, the fund would be uncovered by March 2023. Theoretically.
INDEX:BTCUSD
by andre_007
Coke Zero?Coke will remain my soft drink of choice however, I will not be buying any of its stock any time soon. Recently KO was suggested as 'safe stock for seniors' however, I couldn't disagree more. Coke has spent the past 20 years climbing up towards its recent, new all-time high but the lasting RSI divergence is quite evident. There's a pretty good chance that this stock loses nearly 80% of its value over the next 7-10 years. Holders should look for the most suitable exit in order to avoid more losses than necessary. (Wave analysis has been redacted from this marking however, wave-by-wave analysis will be tracked via link in bio).
NYSE:KOShort
by DigitalSurfTrading
11
Meta Obliterates SupportMeta/Facebook has destroyed its nearby support level and has nothing left to sustain ground for any lasting upside push. A relief rally could come over the next couple of years however, the downward slope has already initiated. Barring any rise above $305, it can be comfortably assumed that Meta will look to discover support near the $60 range. Holders should look for the most suitable exit in order to avoid more losses than necessary. (Wave analysis has been redacted from this marking however, wave-by-wave analysis will be tracked via link in bio).
NASDAQ:METAShort
by DigitalSurfTrading
10
Booking Slips Below Nearby SupportGoing sideways since 2018, Booking.com has not gained much ground. Despite claiming a new all-time high in 2022, the RSI has shown a loss in relative strength. Its very likely that this stock sees a 60% drop in value over the next 2-3 years. Holders should look for the most suitable exit in order to avoid more losses than necessary. (Wave analysis has been redacted from this marking however, wave-by-wave analysis will be tracked via link in bio).
NASDAQ:BKNGShort
by DigitalSurfTrading
1
There's No Wonder Why Elon Hasn't Bought Back His Tesla StockBefore Elon's announcement of any stock split, it was predicted that Tesla's stock was due for a deep retracement. Week ago, I thought that drop action had finalized however, based on reassessment of the wave structure + assessment of NAS100, it seems very likely that Tesla will do its part it assisting to drag down the index. Many would assume the outcome from Tesla AI Day would result in bullish momentum or new investors, and it very well may. The new buyers (investments) won't be enough to stop the pending 50% drop however. Holders should look for the most suitable exit in order to avoid more losses than necessary. (Wave analysis has been redacted from this marking however, wave-by-wave analysis will be tracked via link in bio).
NASDAQ:TSLAShort
by DigitalSurfTrading