What is Drawdown in Trading and How to Manage it: Tips and Techniques

This article discusses drawdown in trading, what causes it, how it is calculated, and presents tips on how to avoid large drawdowns.


7/16/20231 min read

Drawdown in trading is the magnitude of the decline in the value of a portfolio, individual investment, or trading account from its peak value to the lowest point. It is measured as the percentage ratio of the decline to the highest value. Drawdown is a key metric in trading and investing, as it displays the risk and volatility of a trading strategy or investment.

In this article by Finestel, we begin by providing a clear definition of drawdown, how it’s calculated, and what it means for the trader. We then dive deeper by introducing additional concepts like maximum drawdown and their use cases Finally, we make some suggestions on how to manage your drawdown in crypto trading.