A Beginner’s Guide to Drawdown Protection: Stop-Loss and Take-Profit Levels

A winning strategy is worthless if one bad trade can wipe out months of gains. That’s where drawdown protection comes in. By combining well-placed stop-loss (SL) and take-profit (TP) orders, traders cap downside while systematising exits on the upside. This guide explains why both tools matter, how to calculate placements, and what common mistakes to avoid—even if you’ve never placed an advanced order before.

What Is Drawdown?

Drawdown measures the decline from a portfolio’s peak value to its subsequent trough. A 20 % drawdown means your capital fell from $10 000 to $8 000 before recovering. The deeper the drawdown, the harder it is to claw back: a 50 % loss requires a 100 % gain just to break even.

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