I just noticed that many people entering Forex trading still do not truly understand the meaning of drawdown, which causes them to trade randomly. This is the main reason they lose money quickly. Let's understand what drawdown is and why it is important to our trading.

Drawdown essentially refers to the decrease in account balance from the peak until it recovers. If your account once reached 20,000 baht and then dropped to 15,000 baht before bouncing back, that indicates a 5,000 baht drawdown. This happens to everyone, even professional traders; the difference is how well they manage it.

There are several types of drawdown you need to know. The first is Equity Drawdown, which measures the real-time decrease in your account balance, including unrealized profits and losses from open trades. This type greatly affects traders' psychology because they see their money decreasing right in front of them.

Then there is Historical Drawdown, which looks back to learn how much loss we have experienced in the past. This data helps us assess risk and improve strategies. If you previously experienced a 30 percent loss, you should be prepared to face similar situations again.

Relative Drawdown is calculated as a percentage. If your account drops from a peak of 20,000 baht to 15,000 baht, that’s a 25 percent drawdown. This percentage makes it easier to compare the performance of different accounts.

Absolute Drawdown measures the loss from your initial deposit. If a trader deposits 10,000 baht and the account falls to 8,000 baht, the absolute drawdown is 2,000 baht. This figure tells you how much profit you need to recover your initial investment.

Floating Drawdown is an unrealized loss. For example, you open a trade and see a loss of 1,000 baht, but the trade is still open. This amount could recover if the market turns around or could disappear if the market worsens. This type of drawdown helps us decide whether to close the position or wait.

Now, let’s discuss how to manage it. The first step is to set a drawdown limit, such as deciding that if accumulated losses reach 10 percent of your account, you will stop trading and reassess your strategy. This limit helps protect your capital from large losses.

Using Stop Loss is crucial. When entering a trade, set a point to close the trade if the price moves against your expectation. This limits your loss on each trade.

Risk management of 2 percent per trade is a golden rule for professional traders. It means risking no more than 2 percent of your total funds on a single trade. If your account is 10,000 baht, you should risk no more than 200 baht per trade.

The risk-to-reward ratio should be 1 to 2 or better. That means if you risk 100 baht, aim for a profit of at least 200 baht. This helps accumulate profits more than losses.

Another important point is not to trade emotionally. After a loss, humans tend to want to recover it by risking more, which is revenge trading and only worsens the situation. Stick to your trading plan even if your mind urges otherwise.

Taking profits periodically also helps. When your account grows significantly, withdraw some profits to protect your capital from market risks.

In summary, the true meaning of drawdown is learning that losses are part of the game. The key is managing it well. If you understand and control drawdown, you can go far. If you let it control you, your account will quickly run out. Test new strategies on a demo account first to gain experience and confidence.