Drawdown and losing streaks
What you learn in 3 minutesDrawdown is how far an account has fallen from its highest point. If a ₱50,000 account drops to ₱44,300, the drawdown is ₱5,700, or 11.4 per cent. This lesson shows why a run of losses is normal and how the size of each loss decides how deep the fall goes.
Six losses in a row at 2 per cent risk
| Step | Amount | Note |
|---|---|---|
| Starting balance | ₱50,000 | A round figure chosen for the example. |
| Risk on each trade | 2 per cent | ₱50,000 x 0.02 = ₱1,000 on the first trade. |
| Loss 1 | ₱1,000 | 2 per cent of ₱50,000. Balance falls to ₱49,000. |
| Loss 2 | ₱980 | 2 per cent of ₱49,000. Balance falls to ₱48,020. |
| Loss 3 | ₱960 | 2 per cent of ₱48,020. Balance falls to ₱47,060. |
| Loss 4 | ₱941 | 2 per cent of ₱47,060. Balance falls to ₱46,119. |
| Loss 5 | ₱922 | 2 per cent of ₱46,119. Balance falls to ₱45,197. |
| Loss 6 | ₱904 | 2 per cent of ₱45,197. Balance falls to ₱44,293. |
| Total fall from the peak | ₱5,707 | ₱50,000 minus ₱44,293. That is 11.4 per cent of the peak. |
The six losses are rounded to the nearest peso. A broker may also charge a spread, commission or swap on each trade, so the real fall can be slightly larger. Spreads and commissions vary between brokers.
The mistake people make here
The common mistake is to double the risk after two losses to win the money back quickly. That turns a normal run into a deep hole. At 4 per cent risk, six losses in a row would take the same ₱50,000 down by more than 21 per cent, not 11.4 per cent. Keep the risk per trade the same, or lower it, and check the balance line before the next trade. A losing streak is a sequence, not proof that the method is broken.Check yourself
An account starts at ₱30,000. It loses 2 per cent, then 2 per cent of the new balance, then 2 per cent again. What is the balance after three losses, to the nearest peso?
₱30,000 x 0.98 = ₱29,400. ₱29,400 x 0.98 = ₱28,812. ₱28,812 x 0.98 = ₱28,236. The fall is ₱1,764, or 5.9 per cent of the peak.
EUR/USD is around 1.0850 and one pip on one standard lot is 10 units of the quote currency. If the quote currency is the US dollar, what is one pip worth in pesos when PHP 1 is worth about USD 0.017?
One pip is about USD 0.10, which is about ₱5.88. The exact peso figure changes with the exchange rate, and the rate your broker uses will differ.