Skip to content
GetProfitable
Search
Dictionary

Drawdown psychology

How behaviour changes during an extended losing stretch, and why the damage usually comes from the response rather than the losses themselves.

Every strategy has drawdowns, and they last longer than people expect. The statistical part is survivable. The behavioural part is what ends accounts: size increases to recover, standards lowered to find trades, a switch to a new method, or a stop to trading precisely as conditions turn.

Know the shape of your own before it happens. From your records or a backtest, write down the expected worst drawdown and its typical duration in trades, and keep it somewhere visible. A loss run inside historical norms is information about variance; one well outside it is information about the strategy.

Plan the response in advance: reduce size at defined thresholds, raise review frequency, keep participation full, and set the quit-point before you need it.

Related: max-drawdown, quit-point, strategy-hopping, undertrading

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

An equity curve and its drawdownAn account balance rising over a year, falling from a peak to a trough, then climbing back to the old peak.ACCOUNT EQUITY$20k$12k$8k024681012TIME (MONTHS)PEAK $16,000TROUGH $12,000DRAWDOWN−25%RECOVERY
Equity curve and drawdown. An account balance plotted month by month. The fall from the $16,000 peak to the $12,000 trough is a 25% drawdown, and the shaded area lasts until the balance climbs back to the old peak.

Educational only, not advice. Spotted an error? Post in Site Feedback.