Risk

Drawdown

The decline from an account's peak to its subsequent low.

Drawdown measures how far equity has fallen from its highest point before recovering, usually expressed as a percentage. A peak of 10,000 falling to 8,000 is a twenty percent drawdown.

Recovery is mathematically harder than the loss: a fifty percent drawdown requires a hundred percent gain to return to break-even, and it must be earned on a smaller account. This asymmetry is the strongest argument for keeping per-trade risk small.

Enseñado en estas lecciones

The mathematics of drawdown — Risk & Position Sizing
Backtesting honestly — Strategy & The Journal
Expectancy & R multiples — Strategy & The Journal
Process versus outcome — Psychology & Longevity
Patience & the discipline of doing nothing — Psychology & Longevity

Términos relacionados

Risk managementThe discipline of losing small so you survive to trade the good setups.Risk ExpectancyThe average profit or loss, in R, that a strategy produces per trade.Analysis Position sizingChoosing trade size so that the stop distance costs exactly your risk budget.Risk

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