You copy a trader at 2 AM, excited about +50% annual returns.
The next morning, you check your account. You're up $200. Great.
Two weeks later, market crashes. Your account drops 20%. Still okay, you tell yourself.
Week after that, down 35%. Your heart is pounding. You can't focus at work. You sleep poorly.
Week after that, down 40%. You panic. You sell everything at the absolute bottom, locking in losses.
The trader recovers the next month (you're not there to see it).
This guide shows you how to match drawdown to your psychology so you never panic-sell again.
Finding Your Personal Drawdown Tolerance
The Honest Question
"If your $10,000 account dropped to $6,000, could you stay calm?"
If yes: You can handle -40% drawdown.
If no: You can't.
This is the only question that matters.
The Reality Check Exercise
Imagine these scenarios. Which can you handle?
Scenario A: -10% Drawdown
Account: $10,000 → $9,000
Can you handle it? Most people: Yes
Emotional difficulty: Low
Scenario B: -20% Drawdown
Account: $10,000 → $8,000
Can you handle it? Most people: Uncomfortable but yes
Emotional difficulty: Medium
Scenario C: -30% Drawdown
Account: $10,000 → $7,000
Can you handle it? Most people: Difficult, tempted to sell
Emotional difficulty: High
Scenario D: -40% Drawdown
Account: $10,000 → $6,000
Can you handle it? Most people: No, panic-sell
Emotional difficulty: Very High
Your honest answer determines your trader selection.
Matching Traders to Your Tolerance
The Selection Framework
If you're very risk-averse:
- Copy traders with MDD better than -15%
- These traders have barely experienced real losses
- You might earn 20-30% annually, but you'll never panic
If you're moderate risk tolerance:
- Copy traders with MDD between -20% and -30%
- Healthiest risk/reward zone
- You might earn 30-40% annually with manageable dips
If you're high risk tolerance:
- Copy traders with MDD between -30% and -45%
- Significant losses possible, but if you have discipline, acceptable
- You might earn 40-60% annually
Key Takeaways
Continue Learning
Maximum Drawdown: Why Your Worst Loss Matters More Than Your Best Gain
Understand the mathematics of drawdown recovery
Consistency vs Excitement: Why Boring Traders Make More Money
Low drawdowns = boring but profitable
