How to Get Out of a Drawdown (Step-by-Step Fix)

In this video, I’ll show you how to get out of a drawdown step by step. Most traders either don’t know what to fix, or they try to fix everything at once. And that’s exactly why they stay stuck. To get out of a drawdown, you need a clear plan. You need a system. And that’s what I’m going to show you now. There are essentially two reasons why you are in a drawdown. The first reason could be a risk and money management problem. The second one could be a strategy problem. So let’s first cover the risk and money management problem, because this is easier to fix. The most common mistake why people are in a drawdown is that they don’t have a constant risk per trade. And this is quite surprising, right, that so many people have problems with that. But they really do, based on the messages I’m getting. Sometimes people send me their account statements and I help them pinpoint the problem in their strategy, and many times, I would say the majority, it is this not having a constant risk per trade. There’s an easy fix just risk the same amount on every trade and you’ll get rid of this problem. Another problem people have is that they risk too much on one single trade, which goes wrong and puts them into a drawdown. Right? So yeah, risk the same amount on each trade. Another very common thing is big risk exposure caused by correlated trades. That means that if you look at those three charts here, then imagine you enter three trades at the same time. You enter long here, long here, and short here. Imagine that those are highly correlated pairs. It could be, for example, EUR/USD, GBP/USD, and USD/CHF. EUR/USD and GBP/USD have a high positive correlation. USD/CHF has a high negative correlation. So if you enter long here, long here, and short here, it is very likely that all those trades will have the same outcome either all winners or all losers, right? And this is the big risk exposure I’m talking about. So if you see that you are about to enter three trades like that three trades that are heavily correlated, three or more I should say then my recommendation is to decrease your risk to 50% per trade. So if you trade 10 lots on EUR/USD, 10 on GBP/USD, and 10 on USD/CHF, then you want to go for five, five, and five. This way you manage the risk. And if all those three trades end up as losers, then you won’t lose as much as if you were trading with full position size. Now, the second big reason why you could be in a drawdown is your trading strategy. There is some problem with your trading strategy, and there is a bit more work involved if you want to fix this. My number one tip is to take screenshots of every trade that you take. Every screenshot also needs to have a short note. It should include the reason for trade entry, the reason for take-profit and stop-loss placement, and a short note about how you managed the trade. It could look, for example, like this. This is one of the trades which I took. This is the reason why I entered the trade there was a Volume Profile trend setup. In here I have the volume cluster within the trend. This is where I went short from. This is my stop-loss it was behind a heavy volume zone. This was where I took profit, before the first heavy volume zone. You can see that in here. And there’s also a short note at the bottom which says I was trading with a positive risk-reward ratio and that I moved the stop-loss to a reaction point after the trade reached risk-reward one. That’s it. This shouldn’t take more than one minute to make. And you really want to keep it brief, because when you go through many of those in order to fix your strategy, you want the process to be quick. Now, when you are going through those screenshots, there are a couple of things that you should look for. I would say the most important thing here is that you want to focus on the good trades and the things that you did right. You want to keep the feedback positive. So you want to look at those screenshots and identify the things which went well, which you did right. That could be a good trade entry, a strong level, good confluence, or good take-profit placement. Take-profit was placed according to your rules, or you were trading with a positive risk-reward ratio meaning you were not too greedy about taking profit nor too afraid. It could also be a good stop-loss placement that you placed the stop-loss according to your rules, your trade was well managed, and you secured your position properly, or you handled the stop-loss correctly. So this is the positive stuff to focus on when going through the screenshots. But you also want to identify the things which went wrong. What you want to do is focus on the drawdown period and review screenshots from that period. And here are a couple of things you should look for. These are typical mistakes that people make most often: trading weak levels, holding a bad trade for too long, bad take-profit placement, bad stop-loss placement, not securing the position by tightening the stop-loss, securing the stop too soon, quitting the trade too early, or entering a trade without a plan. Those are the most common mistakes, and if you review your screenshots, you should look out for those. So that’s about it. I hope you found it useful. If you want to learn my trading strategy from A to Z, then visit my website, trader-dale.com. What you want to do is click on “Trading Course & Tools” That will bring you to this page. If you scroll down a bit, you can browse my trading education and custom-made trading tools. So, thanks for watching the video. I’ll be looking forward to seeing you next time. Until then, happy trading.