What drawdown measures
Drawdown is the drop from a peak in your account balance to a subsequent low, before a new peak is reached. If your account rises to €12,000 and then falls to €9,000 before recovering, you experienced a €3,000, or 25%, drawdown.
It matters because it captures the pain of trading in a way that a single return figure hides. Two accounts can end the year up the same amount, but the one that dropped 50% along the way was a far more dangerous, harder-to-hold ride.
The recovery maths is unforgiving
Recovering from a drawdown requires a larger percentage gain than the loss that caused it. A 20% loss needs a 25% gain to break even. A 50% loss needs a 100% gain — you must double what remains just to get back to where you started.
This asymmetry is why deep drawdowns are so destructive. A 90% loss requires a 900% gain to recover, which is effectively impossible for most. Avoiding large drawdowns is far more important than chasing large gains, because the maths punishes deep holes brutally.
Managing drawdown in practice
The tools for controlling drawdown are the familiar ones: small risk per trade, stop-losses, and not adding to losers. Risking a small percentage per trade means even a long losing streak produces a survivable, recoverable dent rather than a crater.
It also helps psychologically to expect drawdowns rather than be shocked by them. Every approach has losing runs. Knowing your likely worst-case drawdown in advance makes it far easier to hold your discipline when the inevitable losing streak arrives.