How to Handle Trading Drawdowns Without Blowing Up Your Account

Drawdowns Are Inevitable

A drawdown is the decline from a peak in your account equity to a subsequent low. Even the best traders experience them. The question isn't if you'll have drawdowns, but how you'll handle them.

The Psychology of Losing Streaks

Losing money triggers primal responses. Fear kicks in. Self-doubt grows. The temptation to either quit entirely or "trade back" losses with bigger positions is overwhelming. Both responses typically make things worse.

Tactical Responses

1. Reduce Position Size

If you're in a drawdown, cut position sizes by 25-50%. This does two things: reduces further damage and lowers emotional intensity. You can trade with clearer thinking when less is on the line.

2. Review Your Journal

Is the drawdown due to market conditions (your edge not working in this environment) or execution errors (breaking rules, emotional trades)? The answer determines the response.

3. Tighten Criteria

Only take your A+ setups during drawdowns. Skip marginal trades. Fewer, higher-quality trades reduce the bleeding while you regain footing.

4. Consider a Trading Pause

Sometimes the best trade is no trade. Taking a day or week off to reset mentally can break a negative spiral. The market will be there when you return.

What NOT to Do

• Revenge trading: Increasing size to "win it back quickly" usually accelerates losses

• Strategy hopping: Abandoning your approach at the worst time

• Blaming externalities: The market, market makers, bad luck—look inward first

• Hiding from your P&L: Avoidance doesn't solve problems

Perspective Helps

A 10% drawdown requires 11% gain to recover. A 20% drawdown requires 25%. A 50% drawdown requires 100%. This math is why limiting drawdowns matters more than maximizing gains. Survival is the first goal.

Building Drawdown Resilience

• Risk management: Position sizing that makes drawdowns survivable

• Realistic expectations: Accept that losing periods happen

• Identity separation: You are not your P&L

• Long-term focus: One bad month doesn't define a career

Drawdowns test character more than skill. How you handle adversity determines whether you survive long enough to benefit from the winning streaks.