What Does Stock Drawdown Mean and How to Control It  

Drawdown is a term frequently mentioned in the stock market, but what exactly does it mean?  

A drawdown is essentially a common term in investment or capital trading, specifically used to describe the reduction in account funds over a certain period. More precisely, it refers to the decline in net value from its peak to the lowest point during a specific timeframe.  

During this period, there may be multiple instances of net value decline. By identifying the largest decline among them, we determine the maximum drawdown.  

So, how can we control drawdowns in stock trading? In fact, managing drawdowns is relatively straightforward. The key lies in adjusting one’s mindset and exercising greater caution in trading operations. This way, you can avoid missing out on significant high-performing stocks.  

Specifically, it’s crucial to maintain confidence in yourself. Even if the numbers in your stock account drop or you make operational mistakes, confidence is the last thing you should lose. For ultra-short-term trading, confidence is paramount—though this doesn’t mean overconfidence. Instead, it’s about maintaining a serious and realistic attitude, tackling subsequent tasks with confidence.  

In stock investing, if you can successfully control drawdowns and keep risks firmly in mind, you’ll find that the power of compounding can exceed your expectations. However, avoid excessively pursuing short-term super-high profits—this is a major pitfall.