In trading, a drawdown refers to the decline in an investment or trading account from its peak value to its lowest point before a new high is achieved. It measures how much an account has fallen during a losing streak and is often expressed as a percentage. Drawdowns help traders assess risk, volatility, and the resilience of their trading strategies.

Understanding drawdowns is crucial because even profitable systems experience temporary losses, and knowing how to manage them can make the difference between long-term success and failure in the markets. Table of Contents

How Does a Drawdown Work?

Causes of Drawdowns

Risk Management in Drawdowns

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How Does a Drawdown Work?

A drawdown is a decline in the value of a stock or account over a specified time before it re

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