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Keeping a drawdown log: start date, depth, length, recovery

Most traders know their maximum drawdown. Fewer keep a record of every drawdown. A simple drawdown log makes it much easier to judge whether the current one is normal.

What I record for each drawdown: the date it started, from the last equity high. The lowest point and how deep it went, in R or percent. How many trades and days it lasted. And when equity got back to the previous high, if it has.

After a while you get a picture. Typical drawdowns for your strategy might be a certain depth and last a certain number of trades. Occasionally there's a deeper one. Knowing that history is very useful when you're in the middle of one, because you can see whether it's within the normal range or something unusual.

If the current drawdown is deeper or longer than anything in your history, that's a signal to look harder. Has the market changed? Are you breaking rules? Is the strategy still valid? If it's within the normal range, it's probably just a drawdown, and the right move is to keep trading the plan.

The log also helps with sizing. If you know your typical drawdown depth in R, you can choose risk per trade so that a normal drawdown doesn't put you near any limits.

It's a few lines per drawdown. Not much effort.

Measuring drawdowns in R rather than money keeps them comparable if your size has changed over time. A drawdown of a certain amount at small size might be much deeper in R than one of the same money amount at larger size. Since R reflects the strategy's behaviour, it's the better unit for this log. A second column for the money amount is fine if you want it, but the R figure is what tells you whether the strategy is behaving normally. Money figures are fine for the account, but R is better for judging the strategy.

Adding a short note to each drawdown on what was happening makes the log much more useful over time. Market conditions, rule breaks, life events. After a few drawdowns, you might notice that the deeper ones all involved a particular market condition or a period of rule breaking. That's actionable. Pure numbers show that a drawdown happened. Notes help explain why, which is what you need to make it less likely next time. Over a year, those notes often turn into the most useful part of the log, because they show the conditions that make your drawdowns deeper or longer than usual.

Knowing that past drawdowns usually lasted two to three weeks and reached 5 percent makes a current 4 percent drawdown feel much less alarming.

The recovery time is the most useful column. It helps set expectations for how long it usually takes to get back to a new equity high, and whether the current drawdown is unusual.

The time spent at the bottom of a drawdown is a useful extra column. Some drawdowns drop quickly and recover quickly. Others reach their low point and then sit there for weeks, moving sideways before any recovery. That flat period is often the hardest part mentally, and it's when people change strategies or increase risk. Recording how long the account stayed near its low, separately from the total drawdown length, shows how often you go through that and how long it usually lasts. Knowing the typical length makes the next one easier to sit through.

Is it useful to log what you did during each drawdown, not just what happened? For example, whether you reduced size, took time off, changed anything in the strategy, or kept going as normal. After a few drawdowns, you can compare which responses were followed by quicker recoveries. It won't be a clean experiment, since every drawdown is different, but it might show that some reactions consistently made things worse. That's useful to know when the next one starts, because it gives you something better than gut feeling to decide how to respond.