What is Forex drawdown
A drawdown in Forex is a situation where unsuccessful trades result in reduced funds in the trader’s account. In such cases, trader done trade at a loss, not a profit. Most players experience this phenomenon, and there is nothing wrong with it. However, if the drawdown occurs regularly, it requires a severe strategy review.
This situation can be temporary or permanent. Temporary drawdowns are characterised by the fact that the losing trades have not yet been fixed. Permanent drawdowns indicate loss-making trades that have already been closed. In this case, the temporary phenomenon does not affect the balance, unlike the permanent one.
An example best illustrates the difference between the two types of drawdowns. A trader has USD 500,000 in his account and buys 100 shares at USD 1,000 each. After a while, the value of the securities fell to USD 900, so the trader bought them at a higher price. This resulted in a temporary drawdown of USD 100 per share.
As a result, the amount of quick funds in the account is USD 40,000, but the balance is unchanged at USD 500,000. If the share price continues to rise, the drawdown begins to decrease. If a trader closed trade under the same conditions, the balance will change, and this is an example of a constant drawdown. 
Drawdown types
In Forex trading, traders use two ways to calculate the potential drawdown. The basic one is the difference between the initial account and the minimum deposit divided by the initial funds. Then specialists multiplies it by 100%. The maximum drawdown is the difference between the maximum and minimum funds in the account.
You must understood that a temporary drawdown occurs when the trader has open trades. To understand the nature of such a phenomenon, one should consider the factor of current profit. Its value experts recommend to considered only when the price position does not meet the trader’s expectations. And it does not mean that the trade is unprofitable. After a short time, changes may occur, and the drawdown will ease.
The length of the drawdown depends on the trading strategy chosen. However, if the drawdown is 50% or more, you should carefully analyse your actions and change your approach.
It is important to examine the reasons for the drawdown. If the drawdown does not exceed the predicted value during trading, the strategy is working and does not need to be changed. If the drawdown rate often exceeds expectations, it is worth reconsidering your attitude towards risky trades.
