Drawdowns, leverage, daily limits and your trading plan
Why a 50% loss needs a 100% gain, why leverage destroys beginner accounts, when to stop for the day, and how to write a simple trading plan.
The last piece of risk management is protecting the account as a whole: from deep drawdowns, from leverage, and from your own emotions on a bad day.
Drawdown math
A drawdown is the drop from your account's peak to its low point. Losses and gains are not symmetric. The gain needed to recover is: loss ÷ (1 − loss).
| Loss | Gain needed to recover |
|---|---|
| 10% | about 11% |
| 20% | 25% |
| 50% | 100% |
| 75% | 300% |
| 90% | 900% |
A 10,000 account falls 50% to 5,000. A 50% gain from there only brings it to 7,500. To get back to 10,000, the trader needs to double the account, a 100% gain. That is why avoiding big losses matters more than chasing big wins.
Why to avoid leverage
Leverage lets you control a position larger than your money by borrowing. With 10x leverage, a 10% move against you can wipe out your whole margin, and positions are usually liquidated (force-closed) even before that because of fees and maintenance requirements. Leverage multiplies losses as fast as gains, and it makes small, normal price swings fatal. For beginners, the safest choice is simply not to use it.
Max daily loss: knowing when to walk away
Set a maximum daily loss, for example 2% or 3% of your account, or three losing trades in a row. When you hit it, you stop trading for the day. Losses trigger emotions such as frustration and the urge to "win it back," and decisions made in that state are usually worse. Walking away protects both your account and your judgment.
Write a trading plan
A trading plan is a short written document you follow every time. It should answer:
- What do I trade, and on which timeframe?
- What exact conditions make me enter?
- Where does my stop go, and how do I calculate size?
- How much do I risk per trade, and what is my max daily loss?
- When do I take profit?
- When do I review my trades, for example every weekend?
Keep a trading journal too: entry, exit, size, reason, result and how you felt. Over time, it shows whether you follow your plan and where your mistakes repeat.
Most retail traders lose money. A BIS study estimated that a majority of retail bitcoin app users lost money on their initial investment between 2015 and 2022. A plan does not guarantee profit; it limits damage while you learn.
A free account tracks lessons, unlocks the quizzes and gives you 10,000 virtual USD (no real value) to practise with.