Use a consistent equity measure

Drawdown measures a decline from a previous peak. Balance-only records can miss open losses. State whether the series includes unrealised results and identify deposits or withdrawals that could distort performance.

Recovery uses a lower base

A decline from 1,000 to 800 is a 20% drawdown. Returning from 800 to 1,000 requires 25%. The same monetary amount represents different percentages when the base changes.

Diagnose before responding

Distinguish expected variability from execution errors or a changed environment. Larger positions may deepen losses rather than shorten recovery. Review the process instead of imposing a deadline for winning money back.

Separate deposits from recovery

If an account rises from 800 to 1,000 because 200 was deposited, the increase is not a trading recovery. Mark cash flows separately from investment results. An improved account value can otherwise be mistaken for improved performance.

Source and reading notes

This is an independently written educational overview based on the ATFX reading linked below. Examples are illustrative, not live quotes or forecasts. It does not reproduce the original article or imply endorsement by its author.