A drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund. A drawdown is usually quoted as the percentage between the peak and the subsequent trough.
You can avoid the heartache and pain by doing the following:
- Use stop loss orders
- Avoid contango. So don't hold commodities exchange traded products (like UNG, DBA) or volatility products (like VXX, UVXY)
- If an exchanged traded product falls below $5 per share, expect a REVERSE SPLIT. If you hold any type of option position before the reverse split, your account cash balance is about to get royally fucked after the split.
- Avoid leveraged funds.
- Make sure you have an option level 2 trading account so you can buy puts and calls
- Cash is a great position right now, especially physical cash which is in short supply