Hey, hey! What’s up, my friend?
Make no mistake, drawdowns suck for everyone.
Whether you’re new or managing a seven-figure account… in a drawdown, it feels like nothing you do works.
Trades fail. Confidence drops. You start questioning everything.
But here’s the thing: Every trader goes through it. What separates those who make it from those who don’t is how they react.
A drawdown doesn’t mean your system is broken.
It doesn’t mean you need to change everything.
And it definitely doesn’t mean you should chase the next “holy grail.”
That’s why in this article, I’ll show you why drawdowns happen, how to handle them, and what real traders do to stay in control when the equity curve dips.
Sound good?
Let’s get to it!
Why Drawdowns Happen (and Why They’re Not Always a Problem)
Let’s clear something up.
Just because you’re in a drawdown doesn’t mean something is wrong.
In fact, if you’re trading a system with real risk, real volatility, and real opportunity, drawdowns are expected.
So why do they happen at all?
Markets go through cycles
If you have been trading long enough, you’ll know no strategy works all the time.
Not even the most sophisticated fund manager in the world can escape it: Markets go through different phases, trending, ranging, volatile, low volume, news-driven, risk-on, risk-off.
Your strategy, whatever it is, is probably built to perform best in some of those conditions, but not all.
So if you’re running a trend-following system and the market starts chopping sideways for weeks, guess what? You’re going to take a few losses. All it means is that your edge isn’t aligned with the current market conditions. And no amount of tweaking is going to fix that overnight!
Understanding this helps you stop blaming yourself every time a setup fails.
A drawdown doesn’t mean your system is broken
This is a big one.
I see so many traders hit a losing streak, then immediately throw out their system and start looking for something new.
But most of the time, what they’re experiencing is just normal variance. Think of normal variance as flipping a coin and getting tails four times in a row.
Does it mean the rules of probability have been broken? Of course not!
If your system was built on sound logic, tested over hundreds of trades, and worked under various market conditions, it doesn’t suddenly stop working just because of a bad week or month.
A drawdown is simply a dip in performance. That’s all. It’s not a verdict on your entire trading plan.
Unless something fundamental has changed, like your setup no longer fits the current market structure, or your edge was based on nonsense to begin with, then your system likely still works.
You just need to stay in the game long enough to see it recover.
Speaking of which…
Knowing your system’s historical drawdown range is critical
Let me ask you, what is your normal drawdown percent for your system historically?
Don’t know?
Well, this is where most traders shoot themselves in the foot.
They don’t actually know what a normal drawdown should look like for their system.
So when they hit a 10 or 15 percent drawdown, they start panicking, assuming the system has failed. But if they had done proper testing, they might have found that the average drawdown is 12 percent, and the worst historically was 23 percent. In that case, they’re still within normal drawdown territory.
But without that knowledge… every red day is going to feel like a disaster!
That’s why backtesting is so important, not just to confirm your system works, but to build mental resilience. When you know what data to expect, you can say to yourself, “Alright, this sucks… but it’s still within what I planned for.”
It takes the panic out of the process and allows you to accept the drawdown rather than fear it.
Drawdowns are more common if you’re trading a high-reward-to-risk system or a low win-rate edge
This part trips up a lot of newer traders.
If your system is built on a low win rate, high reward-to-risk model, for example, like 30 percent winners but 1:3 or 1:4 trades, then you need to expect longer losing streaks and deeper drawdowns.
That’s the trade-off.
You’re trying to catch bigger moves, so your entries will fail more often. Rather than a bug, it’s part of the design, but if you don’t understand that going in, you’ll abandon the system long before the edge plays out.
So the key is this: whatever your strategy, whether it’s high win rate with small gains, or low win rate with big rewards, you need to understand what that edge will cost you.
I mean, all edges take their toll, whether it’s on your patience, your confidence, or your discipline.
If you don’t know what to expect, you’ll succumb to pressure, not because your system failed, but because your expectations did.
In short, drawdowns happen. They’re part of trading, and they don’t necessarily mean you’re failing. Most of the time, they’re just part of the cycle.
So what should you do when you’re inside one?
Let’s start by talking about overreacting.
The Real Danger: Overreacting and Breaking Your Process
Drawdowns don’t destroy traders. Overreacting does.
You’ve been there. A few losses in a row. Confidence dips. You hesitate. Then you start thinking, “Maybe I need a new system.”
Next thing you know, you’re deep on Twitter, watching YouTube videos, and testing Smart Money Concepts or scalping gold, doing anything but the system you were once executing cleanly.
It feels like you’re doing something productive. But what you’re actually doing is hitting the reset button on your progress.
So why do we do this?
Because emotions take over. The losses hurt. You want to fix it. But that urge to change mid-drawdown? That’s fear talking, not logic.
It’s that point when traders overtrade, break rules, or take reckless bets trying to make it all back at once.
And what’s the fix?
Data!
Pull up your backtests. Ask yourself:
- Is this drawdown normal for this system?
- Am I still following my rules?
- Is the system broken… or am I?
When emotions are high, data brings clarity. It either confirms you’re still on track, or it shows you where you’ve drifted from your edge.
So don’t throw away the system just because it’s having a rough patch… That’s like quitting the gym after one tough workout.
Show up. Stay consistent. And eventually, the gains come back.
What You Can Do to Regain Control
At this point, you’re probably thinking, “Okay, Rayner, I get it. Drawdowns happen. I shouldn’t abandon my system…
…But I still feel like crap. What do I actually do right now?”
Fair question.
Because staying the course is easier said than done, right?
When you’re in the middle of a losing streak, logic often takes a backseat. That’s why it’s not just about what not to do, but about having a few practical moves you can make to stay grounded, protect your confidence, and keep trading from a place of clarity.
Here are a few things that, over the years, I have found can make a real difference.
Lower your position size (temporarily)
If your system is still valid but your mindset is fragile, one of the simplest things you can do is reduce your position size.
Don’t worry! You’re still trading the same system. You’re still following the same rules. But with smaller stakes, the emotional weight gets lighter and the pressure drops. You give yourself space to regain rhythm without the fear of another full-size loss wiping you out mentally.
I’ve done this myself. When I’m not in sync or I feel the weight of a drawdown creeping in, I’ll cut risk by 50 percent or more. Not forever, just long enough to get back in the flow.
You’re not giving up. You’re protecting your focus.
Shift your attention away from the P&L
This is a huge one.
When you’re in a drawdown, it’s easy to obsess over every trade outcome. Every red candle feels personal, doesn’t it? You check your equity curve after every position. You start measuring your value as a trader based on how the last three trades went…
Stop.
Focus purely on execution. Did you follow your setup criteria? Was your entry clean? Was your risk managed? Did you exit according to plan?
If the answer is yes, that’s a win! Reward yourself even if the trade was a loser.
Results will come. But obsessing over the scoreboard while you’re still playing the game is a guaranteed way to tilt.
The goal is always clean execution.
Start journaling (if you’re not already)
I don’t just journal my trades for fun; I do it because they make me face reality.
When you’re in a drawdown, your emotions distort things. You start telling yourself stories like “nothing’s working” or “I keep losing every trade.” But when you track things clearly, entry, setup, notes, outcome, you often realise it’s not as bad as it feels.
Maybe you had a few scratch trades. Or perhaps you were trading low-probability setups. It might all still be within completely normal variance.
But you won’t see any of that unless you’re tracking the data.
A journal overrides emotion and provides information.
And when you come out the other side of your drawdown, you can look back and see how exactly the drawdown played on your mind, what you did right, and what you did wrong.
Take a break
Sometimes the best move is to step away.
I’m not saying to quit or to start researching new strategies. I’m talking about a mental reset.
Go for a walk. Take a weekend off the charts. Even a few days where you close the laptop and get some distance from the numbers can make a big difference.
Because here’s the truth: when you’re emotionally charged, you’re more likely to break your rules, force trades, and compound the damage.
A short break can help you return with a clear head and a fresh perspective. Trading isn’t going anywhere. But your decision-making gets worse the more you try to force your way out of a slump.
Sometimes, stepping back is actually the most disciplined move you can make, and there is no shame in it.
Reconnect with your long-term perspective.
When you’re in a drawdown, it feels like nothing else matters. All you can think about is getting back to breakeven.
But zoom out.
Why are you trading this system in the first place? What does your data say about its long-term performance? How did it behave in past drawdowns? How long did it take to recover?
If your system has a positive expectancy, then by definition, it will recover if you give it the chance.
This is why I always keep my system stats nearby. I know my win rate, my average drawdown, my longest losing streak, and my average recovery period. These numbers are anchors when the storm hits.
Because in the short term, trading feels random. But in the long term, if you’re consistent, the edge plays out.
That’s the mindset you need to hold onto.
And it also leads us into the final piece of the puzzle…
Have a Pre-Planned Drawdown Protocol
Now this part can make a big difference, especially if you’re the type of trader who tends to spiral when things go wrong.
It’s what I call a drawdown protocol, a simple plan you create before things go sideways.
Here’s the idea…
When you’re in a drawdown, your emotions are going to kick in. It’s when traders do the most damage, not because of the drawdown itself, but because of the decisions they make inside it.
So instead of making emotional decisions on the fly, you can build a few rules into your plan in advance. That way, when you hit those rough patches, you already know how to respond.
For example, create a protocol where you might say:
If I hit a 10 percent drawdown, I’ll cut my position size by half.
At 15 percent, I’ll stop trading for two days and review my trades.
If I ever hit 25 percent, I’ll pause trading and re-evaluate the system with data, not emotion.
You can also add what an exiting drawdown looks like, so you know when to add risk back on the table.
These aren’t magic numbers. You can adjust them based on your risk tolerance, account size, and trading style.
The point is to give yourself guardrails, so you don’t fall into panic mode when your equity curve dips. In the worst case protocol above, you are 25% down… that’s recoverable. But if you blow your account, you’re out of the game!
It’s about protecting your capital and your psychology when things get tough.
And that’s often the difference between traders who survive long enough to thrive… and those who burn out chasing perfection.
Conclusion
Drawdowns are never fun. But they’re part of the journey.
Every profitable trader you know, look up to, or learn from has gone through them. Not just once, but over and over again. And the ones who make it? They don’t survive because they have some secret strategy or perfect entry system.
They survive because they don’t panic. They don’t chase.
And they don’t abandon their edge the moment things get tough.
That’s the real skill in trading, not just finding an edge, but having the discipline to stick with it through the inevitable rough patches.
So if you’re in a drawdown right now, remember: this doesn’t define you. What matters is what you do next.
Stay calm. Manage your risk. Trade with clarity. And when the dust settles, your edge will do what it was always designed to do: play out over time.
Keep going, my friend. You’ve got this!
Have you recently been through a drawdown? If so, how did it make you feel and what are some things you did well or wish you did better?
Leave a comment below!