Reduce your risk per trade by half and then continue trading until you are out of the drawdown. You need to have determined beforehand what to do at specific levels of drawdowns based on back-testing, not guesswork. You must have enough data about your system/strategy to know what drawdown is normal and which one is unusual. For example, I personally would reduce the risk per trade by 2/3 if I hit a 10% drawdown (because based on backtesting, a 10% drawdown is unlikely but possible). I would then trade at 1/3 the normal risk until I get out of the drawdown. If instead of recovering, I draw down further to 15%, I would re-examine the strategy and check for errors. At 20% DD I would go back to the drawing board and possibly abandon the strategy.
You must have enough information about your strategy or system (based on backtesting) to determine whether a drawdown is "normal" or not.
You must have enough information about your strategy or system (based on backtesting) to determine whether a drawdown is "normal" or not.
