A drawdown is the process of your budget getting smaller after you make one or several losing trades.
Drawdowns may sound bad — but they’re really a normal part of trading crypto.
Look at it this way. If you’re winning half your trades while using stop-loss orders to lock in profits and minimize losses, you’re going to do well in the long run.
At the same time, your account will spend a lot of time with a negative balance — even if it’s just 1, 2 or 5% down. What matters is that you manage drawdowns effectively by:
Let’s start by covering the first point.
Statistically, a trader with a 70% win rate has a 37% chance of seeing 4 consecutive losing trades in a 50-win cycle. That’s not our opinion; this is a mathematical fact.
Think about that statistic. Even if you win 7 in 10 trades — an extraordinary accomplishment that means you’re an incredibly sharp trader — you’re still going to see 4 or more consecutive losing trades most weeks.
These kinds of drawdowns are fine. Every trader goes through them. What matters is controlling your losses, remembering your trading strategy and enforcing it with stop loss orders.
Some drawdowns usually last a lot longer than a few consecutive losing trades — and, if left unchecked, can destroy your equity. If you’re in an unproductive drawdown like this, it’s almost always necessary to look at your trading choices and strategy.
Some things you can do to stay in control during an unproductive drawdown are:
If you’d like more tips, check out our free Adara Academy series on drawdowns. We cover all of the above points in depth and add a few new ones inside.
In closing, drawdowns aren’t a problem in and of their own, but they can quickly spiral out of control, leading to significant losses and putting you out of the game for good.
Now that you know how to differentiate between productive and unproductive drawdowns, you’re well equipped to trade profitably.
Would you like to learn more about crypto trading? Сheck out our educational platform Adara Academy