7 Uncommon But Powerful Ways to Manage Drawdowns in Trading

Worried about losing too much in trading? As a beginner, it’s normal, drawdowns are a vital part of every trader's journey. You must know how to manage drawdowns in trading to protect your account. This is especially important when trading with volatile prop firms. Even the best trading strategies can experience drawdowns.

If you're not careful, your account could be wiped out. Losing all your money can erase months of hard work. But don’t worry there are simple ways to control it. By using the right strategies, you can keep your losses small.

Smart risk control helps you stay in the game. In this guide, you’ll learn 7 easy tips to manage drawdowns. Some of these tips may seem common and often ignored, but only the sufferer can feel how painful it is. So, believe us and read the blog they’re very helpful. These tips are easy to follow, even for new traders.

What is Drawdown?

Before learning how to handle a drawdown, you must understand what it actually is. From reduced trading fees to thinking about profits, there are many things that you worry about.

Before learning how to handle a drawdown, you must understand what it actually is. From reduced trading fees to profits, there are many things that you worry about.

Drawdown is one of them. It means dropping your account balance from the highest point to the lowest. So, isn't it a serious matter? It shows how much money you lost during a bad period. This is shown as a percentage.

For example: your account balance drops from $10,000 to $8,000, you have a 20% drawdown. This can feel scary, especially if you're new in trading life. But it is a normal part of the trading journey. Even good traders go through drawdowns.

They happen when you have a series of losing trades. The market doesn’t always move the way you expect. What matters is how you deal with it? If you act wisely, you can recover soon.

But if you panic, things can get worse. This is why knowing how drawdowns work helps you stay calm. It also helps you make better trading decisions. That’s why it’s important to understand drawdowns clearly. Starting from evaluation fees to profit you need many steps to face.

7 Tips for Managing Drawdown in Trading

Drawdown is a part of every trader’s journey. It means your trading account is going down after a series of losses. But the good news is, you can control drawdowns. You don’t have to lose all your money. You can manage it smartly. Below are 7 helpful tips that can save your account during hard times.

1. Use a Drawdown Budget

One of the most important ways to protect your account is to limit your risk per trade. It means how much money you will risk on each trade. We will say that, never risk too much on one trade.

Keep your risk small to stay safe during losses. You can set a limit on how much you can lose in a month.

For example: you allow only $300 loss in one month.

How to manage:

• Set a monthly loss limit based on your account size.
• Stick to your limit, no matter how tempting it is to trade.
• If you hit the limit, stop and take a break. Use this time to review your strategy and emotions.

By setting strict risk limits, you protect your account from large losses that could trigger a serious drawdown. This strategy ensures that you have enough capital to recover even after a series of losses.

2. Pause After Losses

Make a rule for yourself. If you lose 2 trades in one day, stop for 2 hours. Take a break and cool down.

Example:You lose 2 trades before lunch. Instead of trading more, take a 2-hour break and relax.

How to manage:

• After 2 losses, stay away from the screen for a moments
• Take a break for 1 hour or the rest of the day.
• Do something relaxing, like walking, listening to music or any other thing that you like most
• Use this time to calm down and try to refocus.

A stop-loss will help you keep your losses small. It prevents a drawdown from becoming too severe. It's a safety net that ensures you don’t lose more than you're comfortable with.

3. Make a Special Recovery Plan

You can write down your feelings with a good trading plan. It helps you understand your emotions. You can avoid bad trades by knowing how you feel.

Example:When your account drops 10%, you switch to a "safe mode". You will only trade very clear setups with 0.25% risk per trade.

How to Manage:

• After a loss, risk less on each trade (e.g., 0.25% instead of 1%).
• Only trade the best setups.
• Write down your trading strategy, risk management rules, and goals.
• Don’t trade too much. Stick to your plan.
• Take small trades to rebuild your confidence.

By reducing your position size, you lower the risk per trade and give yourself a better chance of bouncing back from a drawdown.

4. Write Down Your Feelings

You can write down your feelings with a good trading plan. It helps you understand your emotions. You can avoid bad trades by knowing how you feel.

Example: You can write, "I felt nervous" before a trade. Later, you see that nervous trades usually lose.

How to Manage:

• Write your trade and your feelings.
• Note how you felt before, during, and after the trade.
• Check your notes every week.
• Find feelings that cause losses.
• Try to stay calm next time you feel that way.

Trading without a plan leads to making poor decisions. Suddenly changing your plan makes things harder. Sticking to it keeps you safe.

5.Limit Leverage During Drawdowns

Use less leverage to protect your money.Lower leverage helps avoid big losses and gives you time to recover.

Example: If you're using 10x leverage, reduce it to 2x or 3x after a loss.

How to manage:

• After a loss, reduce your leverage (e.g., from 10x to 2x).
• Don't use high leverage when you're feeling stressed or emotional.
• Only increase leverage again when you're confident and the market is good.

Low leverage reduces the risk of big losses. It helps you trade more safely and stay in the market longer.

6. Limit the Number of Trades

Take When you lose trades, you might want to trade more to win back money. But this can cause even more losses.It’s better to wait and trade with a clear mind.

Example: You lost 3 trades. You feel angry and want to take another trade fast. Instead, you stop and wait for a strong setup before trading again.

How to manage:

• Trade less when you are losing.
• Only take trades you really trust.
• Focus on good trades, not many trades.
• Fewer trades help you stay calm and protect your money.

Limiting trades helps you stay calm and make better choices. It also saves your money by avoiding bad trades.

7. Stay Away From Social Media

Stay away from social media during drawdown. Because, looking at tips from influencers can often make you more confused. Each influencer shares advice based on their own experience or strategy, which may not always apply to your situation.

Example: You can avoid Twitter and trading forums after a loss to prevent following random tips.

How to manage:

• Don’t check social media during a drawdown.
• Stick to your plan and don’t chase others' trades.
• Use the time to review your strategy and stay focused.

You can get an idea sometime, you can use it to reduce depression. But not for every time.

Is it Possible to Recover From a Drawdown

After you’ve managed your drawdown with the tips above, here are a few additional suggestions for recovering:

Revisit Your Goals:Remind yourself why you’re trading in the first place. Clear goals will help you stay focused and disciplined.

Analyze What Went Wrong: Understanding the cause of your drawdown helps you avoid repeating the same mistakes.

A positive mindset is key to bouncing back. Focus on learning from your losses instead of dwelling on them.

Stay Positive:A positive mindset is key to bouncing back. Focus on learning from your losses instead of dwelling on them.

Gradually Increase Risk Again: Once you’ve recovered from the drawdown, you can start increasing your risk back to normal levels, but do so gradually.

Conclusion

Drawdowns will happen, but they don’t have to end your trading journey. You can manage them with the right steps. Follow these tips to stay safe. It is not about fast wins. Be patient and stay focused.With these tips, you can handle drawdowns well. You will become a smarter and stronger trader.

Managing drawdowns helps protect your trading future. Small smart steps can save your whole account. Always stay calm and don’t panic during losses. Learn from your mistakes and grow. Keep practicing to improve your skills.