Drawdown and losing streaks
What you learn in 3 minutesThis lesson explains drawdown: the distance between the highest point an account has reached and its current value. If an account peaks at ₹100,000 and later sits at ₹88,600, the drawdown is ₹11,400, or 11.4 per cent. A run of losses produces exactly that kind of fall, and it is a normal part of trading rather than a sign that something has broken.
Six losses in a row at 2 per cent risk
| Step | Amount | Note |
|---|---|---|
| Starting account balance | ₹100,000 | the balance before the losing run begins |
| Risk on each trade | 2 per cent | the share of the account risked per trade |
| Loss on trade 1 | ₹2,000 | 2 per cent of ₹100,000 |
| Balance after trade 1 | ₹98,000 | ₹100,000 minus ₹2,000 |
| Loss on trade 2 | ₹1,960 | 2 per cent of ₹98,000, not of the original balance |
| Balance after trade 2 | ₹96,040 | ₹98,000 minus ₹1,960 |
| Loss on trade 3 | ₹1,921 | 2 per cent of ₹96,040, rounded to the nearest rupee |
| Balance after trade 3 | ₹94,119 | ₹96,040 minus ₹1,921 |
| Loss on trade 4 | ₹1,882 | 2 per cent of ₹94,119, rounded |
| Balance after trade 4 | ₹92,237 | ₹94,119 minus ₹1,882 |
| Loss on trade 5 | ₹1,845 | 2 per cent of ₹92,237, rounded |
| Balance after trade 5 | ₹90,392 | ₹92,237 minus ₹1,845 |
| Loss on trade 6 | ₹1,808 | 2 per cent of ₹90,392, rounded |
| Balance after trade 6 | ₹88,584 | ₹90,392 minus ₹1,808 |
| Total drawdown | ₹11,416, or about 11.4 per cent | ₹100,000 minus ₹88,584 |
Brokers differ in how they round lot sizes, spread and charges, so the exact rupee loss on a trade varies. The percentage figures here assume each loss is exactly 2 per cent of the balance at the time.
The mistake people make here
The common mistake is to treat six losses in a row as proof that the method is broken, then increase the risk per trade to win the money back quickly. That makes each later loss larger and deepens the drawdown. A better response is to keep the risk per trade fixed as a percentage of the current balance, as in the example, so losses shrink as the account shrinks. It also helps to write down the expected number of losing streaks before trading, so a normal run does not feel like a failure.Check yourself
An account of ₹50,000 risks 2 per cent on one trade and loses. What is the loss in rupees, and what is the balance afterwards?
2 per cent of ₹50,000 is ₹1,000. The balance afterwards is ₹49,000.
On USD/INR, one pip on one standard lot is ₹10. If the account is ₹50,000 and the risk is 2 per cent, how many pips of loss does that allow on one standard lot?
The risk is ₹1,000. At ₹10 per pip, that is 100 pips.
An account peaks at ₹80,000 and later stands at ₹70,400. What is the drawdown in rupees and as a percentage of the peak?
₹80,000 minus ₹70,400 is ₹9,600. As a share of the peak, ₹9,600 divided by ₹80,000 is 12 per cent.