If your account dimishes in size too much, there is a stage where you’ll get to the point of no return. Below is a simple chart depicting how much you would have to claw back to get even again.
Before you get to this stage (and hopefully you won’t) you should have it written in your trading plan to review your strategy if things start to go to pear-shaped.
% Drawdown % gain required to recoup losses
10 11.11
20 25.00
30 42.85
40 66.66
50 100
60 150
70 233
80 400
90 900
100 busted
As you can see, once losses get below about 40%, it
becomes a challenging task just to get back to
breakeven. When you eat into half of your trading account capital
you have to have a 100% return just to get back to the
beginning balance.
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