Drawdown

A drawdown is the decline from an account's peak value down to its lowest point after that peak, usually expressed as a percentage — for example, an account falling from a $100,000 high to $80,000 is in a 20% drawdown. Every trader who stays active long enough experiences drawdowns; they're a normal, expected part of the process and not automatically a sign that a trading approach is broken, since a genuinely sound process can still produce a losing streak through ordinary variance. Recovering from a drawdown requires a disproportionately larger percentage gain than the drawdown itself — a 50% drawdown needs a full 100% gain just to get back to even, and a 75% drawdown needs a 300% gain — which is why avoiding deep drawdowns through position sizing and risk management matters more than it might initially seem. Drawdowns are also when behaviors like revenge trading (making impulsive, oversized trades to try to win back losses quickly, rather than following a plan) are most likely to take hold, turning a normal statistical dip into something much deeper.