The word “drawdown” refers to a decrease or reduction, and it is used in the world of finance to describe the drop on the return curve, from the highest to the lowest point. In other words, the most extreme series of accrued losses. In trading, we use the Drawdown to understand broadly how much an individual trader can afford to lose. It also helps us to recognize the processes and strategies each trader has used to reach his final goal, and any upheavals his account may have endured on that journey.
Calculation of the TickTick Drawdown
During the evaluation phase of your trading career, your permitted Drawdown will be calculated at the end of each trading day. You can use your Trading Dashboard on Rtrader Pro to keep track of your results. When your account balance reaches a new high at the end of the trading day, the TickTick Drawdown will be calculated, taking into account only the realized profits at that point, and excluding any unrealized profits you may have been aiming for through the day.
$100,000 Account Example (Tick Drawdown = $3500)
Imagine on your first day of trading you have an open position balance of $100,500. If you were to close your position with $100,000, your TickTick Drawdown at the end of the day would remain $96,500. If we were operating on a Trailing Drawdown, it would be $97,000 for that day.
If on your second day of trading you had an open position balance of $100,800 but closed the day with an account balance of $98,000, your TickTick Drawdown at the end of the day would remain $96,500. If you had a Trailing Drawdown, it would be $97,300.
If you were to skip your third day, doing no trade at all, the balances would stay the same.
Then on your fourth trading day, if you had an open position balance of $103,000 but you closed with a balance of $100,000, your TickTick Drawdown would remain $96,500. A Trailing Drawdown would be at $99,500.
Having an opening position balance of $105,000 on your fifth day of trading, and closing with $104,000 would leave you with a TickTick Drawdown of $100,500. A Trailing Drawdown would be at $101,500 as well.
This example shows how the TickTick Drawdown ignores unrealized profits, taking into account only the realized gains at the end of the trading day.