The master desk
Drawdown
Drawdown is how far the practice account fell from its high. It is the bill the method sends you.
Lesson 2 of 5 • 10 min
Worked example
Study material only. It is not a signal to buy or sell. AcademyTrade is education. It is not a broker, not investment advice, and not a promise that you will make money. Trading can lose the money you deposit.
A method with a pleasant average can still fall a long way before the average shows up. That fall is the drawdown. Measure it from the highest point the practice account reached, down to the lowest point before a new high. Write it in money and in percent.
The number matters because it tells you whether you can sit through the method. A plan you abandon at the first losing week does not have the expectancy you calculated. It has the expectancy of the moment you quit.
Size comes from the loss you already accept, which the risk desk taught. Drawdown is the same idea stretched over a month. If a normal losing streak would make you break the page, the size is still too big, or the method is not yours.
The worst week in the sample is not a surprise. It is part of the method. If you only liked the method on the winning weeks, you have not met it yet.
- Record the deepest fall in every monthly review.
- Compare it with the loss you said you could sit through.
- If you cannot sit through it, reduce the size before you change the rule.