Drawdown

Drawdown refers to the decline in a trader’s account balance from its highest point to its lowest point before recovering. It is usually expressed as a percentage and helps measure the risk and performance of a trading strategy. For example, if a trader’s account grows to $10,000 but then drops to $8,000 before recovering, the drawdown is 20%.

Drawdowns are a normal part of trading, but large or prolonged drawdowns can indicate high risk or poor strategy management. Traders often use risk management techniques, such as stop-loss orders and position sizing, to limit drawdowns and protect their capital. Understanding drawdown levels helps traders evaluate the sustainability of their strategy and maintain long-term profitability.

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