Day trading doesn’t always go smoothly. It’s not a steady climb of making money and growing your account. More often than not, you’ll go through periods of losses—either due to market conditions or because of emotional decisions and a lack of discipline. These periods are known in trading as drawdowns.
A drawdown refers to the decline in your account balance from its peak, measured either in dollars or as a percentage. In simple terms, it’s how much your account has fallen from its highest value.
The reality is that you can’t completely avoid drawdowns—even if you’re executing your strategy perfectly. There’s no strategy in the world that produces only winning days. Every approach experiences drawdowns—some brief, others more prolonged—but they are an inevitable part of the trading journey.
There are many factors that can lead to a drawdown, but one of the most significant is market conditions. It’s important to understand that not every strategy works well in every type of market. Some strategies perform better during periods of low volatility, while others thrive in fast-moving, high-volatility environments. Some strategies yield more wins when the market is trending, while others are more effective in ranging conditions.
There’s no “one-size-fits-all” strategy — and you need to be prepared for that. You have two options: either adapt your strategy so it can handle different types of market environments, or become more selective — recognizing which conditions suit your strategy best and choosing to trade only during those times. When the market isn’t favorable, it’s often better to sit on your hands and wait rather than force trades that don’t align with your edge.
Another major reason for drawdowns is improper execution of your strategy — which usually comes down to emotions.
Even the best trading strategy won’t work unless it’s executed with discipline. It’s not just about having a plan — it’s about following it. That means entering trades at the right time, managing risk properly, and knowing exactly when to exit — whether it’s with a profit or a loss. You might also have rules around how many trades you’ll take per day and during which hours you’ll trade. Every strategy has its own structure, and sticking to that structure is key to achieving consistency.
The most common cause of poor execution is emotional interference. Emotions break discipline. For example, you might see the market moving and feel like you’re missing out. Your strategy doesn’t give you a valid signal, but you enter anyway — that’s FOMO, not disciplined trading. Other times, after a loss or an irrational market move, you may feel frustrated or angry. That emotional reaction can lead to revenge trading or overtrading, pushing you into an even deeper drawdown.
Drawdowns can also be triggered by personal factors — whether emotional or physical — that aren’t directly related to trading. Stress, relationship issues, lack of sleep, illness, or simply not feeling like yourself can all impact your ability to stay disciplined and focused at the screen. Even subtle things like fatigue or low energy can influence your decision-making more than you might realize.
That’s why it’s crucial to stay in tune with both your emotional and physical state. Before you sit down to trade, ask yourself if you’re truly in the right mindset. If you’re not at your best, it’s often wiser to step back and wait for a day when you’re more focused and mentally prepared.
When you’re going through a drawdown, it’s crucial to remind yourself that this is a normal part of the trading journey — and it will never completely go away. Every trader, no matter how experienced, faces these phases. Every strategy, no matter how effective, will go through drawdowns. Your job isn’t to avoid them entirely, but to manage them without letting emotions take control.
Stick to your strategy and follow your plan. If it’s been tested and proven, trust that you’ll eventually come out of the drawdown — just as you likely have in the past. Remember: even the best traders experience drawdowns. No strategy is perfect, and no trader is immune to emotional slip-ups. The difference is that experienced traders recognize them, manage them, and move forward.
You’re not a robot — you’re human. That means it’s okay to have off days. You don’t have to be perfect. The most important thing is to separate your trading performance from your self-worth. A drawdown doesn’t define you as a person.
Take the time to review your losing trades and reflect on what went wrong — not to punish yourself, but to learn. And if things start to feel overwhelming, don’t hesitate to step away for a day or two. A short break can help clear your mind and reset your perspective. Sometimes, hitting pause is exactly what you need to get back on track.
At every stage of your trading journey — and especially during drawdowns — proper risk management is essential. One of the smartest things you can do during tough periods is to scale down.
Many experienced traders temporarily reduce their position size during losing streaks. This might mean trading fewer shares or contracts, or using less capital per trade. This small adjustment can help you feel more in control, even when trades aren’t going your way. It also reduces the emotional pressure tied to each trade, making it easier to stay disciplined and stick to your plan.
Drawdowns are challenging enough — don’t make them worse by taking on more risk than you can handle. Stay smart, stay steady, and focus on getting through the rough patch so you’re ready to thrive when your edge returns.
Earlier, we mentioned that drawdowns are unavoidable — and that’s true. But it’s also important to understand the difference between a normal drawdown and a broken strategy.
First of all, if you’re using a strategy that hasn’t been properly tested, you should stop trading with it immediately and spend adequate time testing it — both forward and backward.
If you’ve thoroughly tested your strategy and you’re experiencing a few days or a week of losses due to choppy market conditions or a lack of discipline, it’s most likely a normal drawdown. These periods are part of trading and don’t necessarily indicate anything is wrong with your strategy.
However, there may come a time when a previously tested and consistently profitable strategy enters a prolonged drawdown. If you’re seeing weeks of poor results — not due to emotional mistakes or poor execution, but because the strategy itself is no longer producing quality setups — it might be time to reassess.
Sometimes, a strategy that once worked well slowly begins to lose its edge. This can be caused by subtle shifts in market behavior, changes in the instrument you’re trading, or adjustments you’ve made to your schedule or execution. Over time, these factors can reduce a strategy’s effectiveness.
When this happens, it’s essential to step back, evaluate, and determine whether tweaks or refinements are needed to realign your strategy with current market conditions. It might only take a few small adjustments — but whatever changes you make, be sure to thoroughly retest the updated version. You need to confirm that the modifications maintain or improve your edge without compromising the strategy’s overall integrity.
Taking a short break during this evaluation period can also give you a fresh perspective and help you return with renewed clarity and confidence.
Even during periods of losses, it’s important to remind yourself that drawdowns are a normal part of trading. No matter how experienced you are or how well-tested your strategy may be, drawdowns are inevitable. What truly matters is how you respond to them.
You can’t let short-term performance shake your confidence — your focus should always remain on long-term results. Stay committed to your process and trust your edge, assuming it has been properly tested and verified. A single day or a tough week doesn’t define your trading journey; it’s the consistency, discipline, and resilience you build over months and years that truly shape your success.
Use drawdowns as an opportunity for growth — to assess your mindset, review your execution, and reflect on whether your strategy still aligns with current market conditions. Manage your risk wisely, scale down when needed, and don’t hesitate to step back and reset if emotions start to take over.
Trading is as much a mental game as it is a technical one. Your ability to stay disciplined, emotionally grounded, and adaptable is just as important as having a solid strategy. In the end, long-term profitability belongs to those who endure the tough phases, stay self-aware, and keep refining their edge.
