I just sat down thinking about this: why does our trading account keep shrinking, and why does it take so long to get back to the original level? It turns out it’s related to something called drawdown, which is the accumulated loss from the account’s peak until it recovers.

It’s not just a natural number or coincidence. If we have a drawdown that’s not managed well, it can develop into a major problem. I’ve seen traders start with 10,000 baht, then their account shrinks to 8,000 baht before recovering. That’s a drawdown of 2,000 baht. Once you understand what this number tells us, you realize the importance of tracking it carefully.

There are several types of losses that traders should know about. The first is Equity Drawdown, which measures the real-time decrease in the account balance, including unrealized and realized losses. For example, if you open a trade and your account drops from 10,000 to 9,000 baht before recovering, that’s an Equity Drawdown of 1,000 baht. This helps us understand how much risk we’re currently exposed to.

Then there’s Historical Drawdown, which looks back at how much you’ve lost in the past. If your account once reached 15,000 baht and then shrank to 10,000 baht, that means you’ve lost 5,000 baht historically. This kind of data helps us understand what kinds of situations we’ve experienced before.

Another important type is Relative Drawdown, expressed as a percentage. If your account grows from 10,000 to 20,000 and then drops to 15,000, the calculation is (20,000 - 15,000) ÷ 20,000 × 100 = 25%. Comparing in percentage terms gives a clearer picture because whether 25% is high or low depends on the context.

There’s also Absolute Drawdown, which looks from the initial deposit. If a trader deposits 10,000 baht and then loses to 8,000 baht, that’s a 2,000 baht drawdown. This helps set recovery goals.

Finally, Floating Drawdown refers to unrealized losses. If you have 10,000 baht in your account and a trade is open that reduces your balance to 9,000 baht, that’s a Floating Drawdown of 1,000 baht. If the market turns around, this loss can disappear.

From my experience, the best way to manage this is by setting limits—deciding, for example, that you will accept no more than a 10% loss of your account. Once that limit is reached, stop trading and reassess your strategy.

Another method is to use Stop Loss orders to ensure losses don’t get too big. If each trade risks only 2% of your account, it helps prevent large drawdowns.

What I’ve learned most is that you need a good risk-to-reward ratio, like 2:1. This means your potential profit should be twice the amount you risk. Even if you lose often, you can still make a profit in the long run.

Another tip is to withdraw profits periodically. If your account grows, take some out to protect your gains, so a market downturn doesn’t wipe everything out.

Finally, don’t trade out of revenge. This is a common mistake among beginners. After losing money, emotions take over, and they trade recklessly to recover losses, which often leads to even bigger losses.

If new traders want to practice this before using real money, they should try a demo account. Many platforms offer virtual funds, allowing you to test strategies and understand what drawdown really means without risking your own money. It’s perfect for learning before trading with real funds.