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Understanding and managing portfolio drawdowns for long-term success.
Drawdown measures the decline from a peak to a trough in your account equity, expressed as a percentage. A 20% drawdown means your account dropped 20% from its highest point before recovering.
Key insight: Drawdowns are asymmetric. A 50% loss requires a 100% gain to recover. A 20% loss requires 25% to recover. This asymmetry is why capital preservation is the first rule of trading — deep drawdowns are exponentially harder to recover from.
Every trader experiences drawdowns. The difference between surviving traders and blown accounts is position sizing and risk management that keeps drawdowns within recoverable bounds — typically under 20% maximum.
If you're in a 10% drawdown, cut your position size in half until you recover. The worst thing you can do is try to 'make it back' with bigger trades. That's how 10% becomes 30%.
The Academy teaches this concept through structured lessons with real chart examples.
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