Drawdown is the difference between the balance of your account, and a net balance of your account.

The net balance takes into account open trades that are currency in profit, or currently in a loss. Drawdowns will also describe the likely survivability of your system over the long run.

Drawdown

A large drawdown puts an investor in an unenviable position. As you can imagine, a trader who suffers a drawdown is best served to simply re-adjust their system as opposed to aggressively trading there way back to break even. Typically, an aggressive approach to get their capital back to break even has the opposite reaction.

They often use leverage and over trade to get their trading account back to even. When traders use too much leverage , one bad trade can have disastrous effects and often does. I sadly see this all too often. In short, traders are either too aggressive or too confident, which leads to sharp losses or unwillingness to accept a trade as a loser that should be cut.

There is an adage in trading that one trade will rarely make your trading career but one bad trade can certainly end your career. I've read and enjoyed this book, and it talks about how a trader lost his career, significant amounts of families fortune as well money of his friends as well by taking a large drawdown. Additionally, this book shares excellent tips on how to overcome this common pitfall of traders without a plan that is likely to be emotionally driven.

Money A2Z

One of the greatest tips in the book is to have a predetermined stop loss point on your trade before entering. This will limit the amount of a drawdown you will take.

Also, you will be able to stand back once you've entered the trade knowing that if that level is hit, you're out of the trade no questions asked. The mistake a lot of traders make is trying to negotiate with the market as to whether or not they should stay in the trade.

Forex Drawdown definition - ProfitF - Website for Forex, Binary options Traders (Helpful Reviews)

It's a mistake because you'll be emotionally driven and likely to do the thing that is less painful at the time but more beneficial down the road. Search the site GO. Forex Trading Forex FAQs Basics Getting Started Fundamental Analysis Technical Analysis Advanced Trading.

Updated September 28, If you account net balance is lower than your account balance, this is called drawdown. Get Daily Money Tips to Your Inbox Email Address Sign Up.

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