Drawdown Control: Setting Hard Stops for Your Portfolio
The math of loss is non-linear. This is the "Traders Trap."
The Recovery Table
- Lose 10% -> Need 11% to recover.
- Lose 20% -> Need 25% to recover.
- Lose 50% -> Need 100% to recover.
- Lose 90% -> Need 900% to recover.
Once you fall into a deep hole (drawdown), digging out becomes mathematically improbable.
Setting a "Max Drawdown" Limit
Institutional desks have a rule: "If you lose 5% this month, you stop trading." You should treat your personal account the same way.
- Set a monthly loss limit.
- If your bots hit it, turn them off.
- Review, re-optimize, and wait for the new month.
Automation
Don't rely on willpower. Use Custom Alerts to text you immediately if your Equity Curve dips below your threshold. better yet, program your bot to self-pause.
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