I just noticed that many people in the trading group frequently ask about the meaning of drawdown. It seems that many still do not truly understand what it is and why it is important.

Let me explain simply: drawdown is when the amount of money in your trading account decreases from its highest point. It’s not just the natural loss that occurs during trading, but a measure of how much your money has fallen since it was at its best.

For example, if you start with 10,000 baht and experience consecutive losses that reduce it to 8,000 baht before recovering, your drawdown is 2,000 baht.

What’s interesting is that there are many types. If you look at real-time drawdown (Equity Drawdown), it shows losses from both open and closed positions. The Historical Drawdown looks back to see how low your account has gone at its worst, helping you understand what you’ve experienced.

There’s also Relative Drawdown, expressed as a percentage. If your account grows from 10,000 to 20,000 and then drops to 15,000, you calculate (20,000 - 15,000) divided by 20,000, then multiply by 100, which equals 25%. That’s your relative drawdown. This percentage is very useful for comparing accounts of different sizes.

Another important one is Absolute Drawdown, which measures from your initial deposit. If you deposited 10,000 and it drops to 8,000, that’s a 2,000 baht loss. This is significant because it tells you how much profit you need to recover to break even.

Then there’s Floating Drawdown, which tracks unrealized losses on open positions. It fluctuates with market prices. If the market turns around, this drawdown can disappear; if it moves against you, it increases.

Why should you care about this? Because it shows your actual risk. A large drawdown indicates high risk, while a small one suggests good money management.

From my experience, the best way to control it is by setting limits—deciding how much percentage your account can drop before you stop trading. Some set it at 10%, others at 20%, depending on your risk tolerance.

Another helpful method is using stop-loss orders on every trade, pre-defining how much loss you’re willing to accept before exiting, preventing losses from spiraling.

An important factor is the risk-to-reward ratio. I usually use 2:1. If I risk 100 baht, I aim for at least 200 baht in profit. This way, even if I lose half my trades, I still end up with a profit overall.

Finally, never trade emotionally. If you’ve already lost money, don’t rush to recover it impulsively. That will only increase your drawdown. Stop, analyze what went wrong, and then return to trading.

If you’re new to this, try practicing with a demo account first so you can understand how drawdown really impacts trading. Grasping this concept will help you stay focused and disciplined in your trading.