How to Manage Drawdown: The Survival Guide

Drawdown is part of the game. If you cannot handle being in the red, you cannot trade. But in Prop Trading, drawdown is weaponized against you. A 5% Max Daily Loss means a $100,000 account is actually a $5,000 account with high leverage.

The Math of Recovery

The deeper you go, the harder it is to get back. But in Prop Firms, it's worse because of the Time Limit (or psychology of it).

• Down 1%: easy recovery.
• Down 2%: Need +2.1% to recover.
• Down 4% (on a 5% limit): You have 1% left. You cannot trade normal size.

The "Half-Life" Strategy

When you hit 2% Drawdown (roughly 40% of your allowed space), you MUST initiate the "Half-Life" protocol.

1. Cut Risk by 50%: If you risked 1% per trade ($1,000), you now risk 0.5% ($500).
2. Why? If you lose again at full size, you are dead. If you lose at half size, you buy time.
3. The Goal: The goal is no longer "Profit". The goal is "stabilization".

Psychological Reset

When you are deep in drawdown, you have "Tunnel Vision". You only see the PnL. Action:

1. Close the charts.
2. Walk away for 24 hours.
3. When you return, Hide the Balance. Focus only on executing one perfect setup.

Avoiding the "Death Spiral" (Martingale)

The #1 reason traders fail is trying to "make it back in one trade". They increase lot size when losing. This is Martingale. It works 9 times out of 10. The 10th time, it blows the account.

Prop Firm Rule: Any firm with a "Consistency Rule" or "Responsible Gambling" clause will ban you for this anyway.

Summary

Drawdown is not a failure. It is a cost of doing business. Your ability to trade small when you are losing is what defines you as a professional. Survive today to trade tomorrow.