Fear of drawdown: what does it do to your trading?
Fear of the drawdown is often worse than the drawdown itself: it shrinks position size to nothing, skips valid setups and locks in stagnation. The fear protects but also imprisons.
How do you manage it?
- how drawdown fear shows up for you
- the data that calms it
- how you trade through the fear
The drawdown guide gives the numbers that make drawdowns survivable.
Background: Drawdown and recovery: why a 50% loss needs a 100% gain
Losses and gains aren't symmetrical. See how much you need to recover from a drawdown, what losing streaks do at different risk levels and how to set limits.
How much do you need to gain to recover from a 50% loss?
100%. The gain needed is the loss divided by one minus the loss, so larger drawdowns need disproportionately larger gains.
What is maximum drawdown?
The largest fall in account value from a peak to a later low, before a new peak is reached, usually expressed as a percentage.
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