Drawdown: how does it affect your trading and account

I think it's frustrating in the first place, of course, because you think that everything you've planned before went wrong, you worry and try to find a way out of it as soon as possible. By the way, you should always stop and analyze the situation, if you submit to the excitement and desire to quickly return the money, then it will be very difficult for you to think rationally and make decisions thoughtfully and so that in the end you get your profits. But sometimes, as other traders have rightly mentioned here, it can serve as a great motivation, which will allow you to shake up a bit and look at what you are doing and what results it gives you. There is nothing wrong with making mistakes, because only the one who does nothing doesn't make them.

after a long break I have decided to enter the stock market right b4 the coronavirus.. went from +10% to -25%.. but now I'm almost breakeven... cause I don't give a f... wtf

Drawdowns are part of any business and an integral part of trading. It is also the most overlooked and misunderstood concepts. Most traders find it difficult to understand and accept that such losses cannot be avoided - Scalping, Grid and martingales have largely misguided many new traders into thinking that 85% or 90% success rate is achievable.

In order to profitably trade a strategy, it is important to know before hand the drawdown involved. This may not always be possible in case of manual trading strategies which cannot be back-tested over longer duration, but in case of automated strategies the back-test results could be of some help - this is of course assuming that the strategy is not curve fitted or rigged to deliver great back-test results.

When choosing any automated strategy, it is helpful to analyse the maximum drawdowns seen in past five to ten years - typically one or two major price cycles are seen in such duration. Always set the trading risk based on the assumption that maximum drawdown level may happen at any time and be mentally prepared to ride out such losing periods. Stopping a good strategy during its normal drawdown period is one of the most common mistakes made by traders. This also gives a cut-off level beyond which the strategy should be changed or stopped until market becomes favorable again.

Managing your draw down and setting good stop losses are two of the most important things you will learn. Why 90% of traders fail.