A Drawdown Recovery Plan You Can Write Today

[Fairman]

A Drawdown Recovery Plan You Can Write Today

Drawdowns happen to every trader. The difference between those who survive and those who don't is often a clear plan written in advance, while emotions are calm.

Here is a template.

Level 1: Down 5% from peak.
- Review your last 20 trades
- Check for rule violations
- Reduce risk per trade by 25%

Level 2: Down 10% from peak.
- Cut risk by 50%
- Trade only A+ setups
- Add an extra weekly review session
- Pause any strategy changes until results stabilize

Level 3: Down 15% from peak.
- Stop live trading for at least a week
- Go back to demo or replay
- Perform a full post-mortem
- Speak with a mentor or accountability partner

Return conditions:
- Complete a set number of rule-following demo or small trades
- Increase risk gradually, step by step, after demonstrating discipline

Rules for yourself during drawdown:

- No revenge trading
- No sudden strategy hopping
- No depositing extra money to "catch up"
- Maintain sleep and routine

Write these levels in your trading plan with your own numbers.

When the moment comes, you won't need to decide what to do. You'll only need to follow what you decided when you were calm.

A plan for bad times is part of professional trading.

[LondonNewsTrader]

Writing the levels down in advance is the right approach. One thing I'd add to level 1 is a check of what the market was doing during the drawdown. A run of losses on central bank days or during a volatile data week can be a market regime issue rather than a trader issue. Cutting risk still makes sense, but the post-mortem should separate the two.

I'd also add a return condition at level 3: re-enter in a light calendar week, not a heavy one. Coming back from a break on the week of payrolls and a central bank meeting puts the reduced risk straight into the most volatile conditions, and an early loss can undo the confidence the break was meant to rebuild.

The rule about not depositing extra money to catch up is the most important line in the plan. That is the decision that turns a drawdown into an account closure.

[Fairman]

One thing I forgot to add: write the plan down somewhere you'll actually see it when you're in drawdown, like a sticky note on the monitor. When you're at Level 2, you won't go looking for a document. You'll just keep trading unless the reminder is in front of you.

[Fairman]

Something that helped make the plan stick: I added a rule that I can't change the plan during a drawdown. Edits only happen when I'm back at a new high or during the monthly review. Otherwise the temptation is to quietly loosen it when it starts to bite. The other thing I added was a clear way back. For example, after Level 2, risk returns to 75 percent after 20 trades with good rule-following, and to full after another 20. Without that, I either stayed small for too long out of fear or jumped back to full size after two winners, which is how the second drawdown starts.