Drawdown

A drawdown is the decline from an account's peak value to its lowest point after that peak, usually shown as a percentage — falling from $100,000 to $80,000 is a 20% drawdown. Every active trader experiences drawdowns; they're a normal part of the process, not automatic proof a strategy is broken, since even a sound approach can hit a losing streak through ordinary variance. Recovery gets disproportionately harder the deeper the drawdown — a 50% drawdown needs a 100% gain just to break even, and a 75% drawdown needs 300% — which is why avoiding deep drawdowns through position sizing matters more than it first seems. Drawdowns are also when revenge trading is most likely to take hold, turning a normal dip into something much deeper.