1. What is MDD?
Maximum drawdown, MDD, is the largest decline in capital from a peak to a subsequent trough during an investment period. It measures the investment's worst stretch.
2. Why it matters
🚨 The mathematics of recovery
A 10% loss requires approximately 11% to recover.
A 20% loss requires 25%.
A 30% loss requires approximately 43%.
A 50% loss requires 100%: doubling the remaining capital.
An 80% loss requires 400%: multiplying the remainder by five.
Recovery becomes disproportionately harder as losses grow.
3. Drawdown benchmarks
📊 Benchmarks quoted by the original guide
Professional traders: Aim to keep maximum drawdown within 10%.
Hedge funds: The source says a drawdown exceeding 20% may prompt consideration of closing the fund.
Individual investors: It recommends keeping drawdown within 30%.
Crypto HODL: Be prepared for drawdowns as large as 80%.
4. Ways to reduce drawdown
- Smaller position sizes: Apply the 2% rule.
- Consistent stops: Use ATR-based trailing stops.
- Diversification: Avoid putting everything into one asset.
- Restrain leverage: Leverage amplifies drawdown.
5. NOONOO TRADING's drawdown management
The original guide describes a −8% kill switch that strictly controls drawdown. It states that each bot automatically stops trading at −8% to protect capital.
🃏 AI drawdown management
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