Drawdown and losing streaks
What you learn in 3 minutesDrawdown is the distance between the highest point your account has reached and its current value. If your account peaked at A$10,000 and now sits at A$8,860, the drawdown is A$1,140, or 11.4 per cent. This lesson shows how a normal run of losses produces that number, and why the run is not a sign that your method has stopped working.
Six losses at 2 per cent risk
| Step | Amount | Note |
|---|---|---|
| Starting balance | A$10,000 | The account value before the losing run begins. |
| Risk on each trade | 2 per cent | The amount the reader decides to risk per trade, set in advance. |
| First loss | A$200 | 2 per cent of A$10,000. |
| Second loss | A$196 | 2 per cent of the reduced balance, A$9,800. |
| Third loss | A$192.08 | 2 per cent of A$9,604. |
| Fourth loss | A$188.24 | 2 per cent of A$9,411.92. |
| Fifth loss | A$184.47 | 2 per cent of A$9,223.68. |
| Sixth loss | A$180.78 | 2 per cent of A$9,039.21. |
| Balance after six losses | A$8,858.43 | The starting balance minus the six losses. |
| Drawdown from the peak | A$1,141.57 | A$10,000 minus A$8,858.43. This is 11.4 per cent of the peak. |
Your broker may round position sizes, charge spreads or commission, and quote a slightly different exchange rate for AUD/USD, so your figures will vary.
The mistake people make here
The common mistake is to treat six losses in a row as proof that the method is broken, and to increase risk to win the money back quickly. That turns a normal drawdown into a much larger one. Instead, decide your risk per trade before you open the platform, keep it small enough that a run of losses does not change your plan, and check the maths rather than the feeling. A losing streak is a known feature of trading with a real edge, not a signal to abandon the process.Check yourself
If you risk 2 per cent of a A$5,000 account and lose four trades in a row, what is the balance and the drawdown?
Losses: A$100, then A$98, then A$96.04, then A$94.12. Total lost A$388.16. Balance A$4,611.84. Drawdown 7.8 per cent.
On AUD/USD at 0.6640, one standard lot moves 10 units of the quote currency per pip. What is that in A$ per pip?
10 units of the quote currency is 10 US dollars. At 0.6640 AUD/USD, that is 10 divided by 0.6640, which is about A$15.06 per pip. The exact figure varies with the rate your broker uses.