Trading is never a straight line to profits. Even the most disciplined traders experience drawdowns—periods when account equity drops due to losing trades. For traders managing funded accounts with firms like Pax Market Funds, drawdowns can feel especially stressful because the firm’s capital is at stake, and violating risk limits can lead to account termination. However, drawdowns are not failures—they are part of the trading journey. The key is knowing how to recover smartly without blowing the account.
1. Understand What a Drawdown Is
A drawdown is the reduction in account equity from a peak to a trough, expressed as a percentage. For example, if your funded account grows to $50,000 and drops to $45,000 due to losing trades, you’ve experienced a 10% drawdown.
Why Drawdowns Happen
Market volatility spikes unexpectedly
Trading decisions are influenced by emotion (fear, greed)
Overleveraging or violating risk rules
Strategies underperform temporarily in certain market conditions
Understanding that drawdowns are a natural part of trading is the first step to recovery. Even the best traders, including those in Pax Market Funds, experience them.
2. Stick to Risk Management Rules
One of the biggest mistakes after a drawdown is abandoning your risk management plan. Funded accounts have strict daily and total drawdown limits. Violating them often results in losing the account entirely.
Steps to manage risk post-drawdown:
Reduce trade size temporarily to protect remaining equity
Lower leverage to avoid magnifying losses
Limit the number of trades per day until confidence and consistency return
By adhering to these rules, traders ensure they stay in the game, giving themselves the opportunity to recover gradually.
3. Take a Step Back and Analyze
After a drawdown, emotional trading is common. The urge to “win back losses quickly” can lead to reckless decisions. Instead:
Review recent trades and identify what went wrong
Check if losses were due to strategy issues, market conditions, or mistakes
Document findings in a trade journal to avoid repeating errors
For Pax Market Funds traders, documenting and learning from mistakes is crucial, as the firm monitors performance and expects discipline and accountability.
4. Adjust Position Sizing and Scaling
Recovering doesn’t mean trading bigger to recoup losses fast. Smart scaling is about trading smaller, high-probability setups until the account stabilizes.
Key tips:
Trade smaller lot sizes while confidence and equity recover
Avoid adding risk to compensate for past losses
Only scale back up after consistent profitable trades
This strategy minimizes the risk of catastrophic losses and aligns with prop firm rules, which often emphasize preservation of capital.
5. Focus on High-Probability Trades
During recovery, traders should prioritize high-probability trades. Avoid forcing trades or attempting to chase market opportunities.
Stick to your proven strategy
Use setups that historically have the highest win rate
Avoid low-quality signals or impulsive trades
By narrowing the focus to quality over quantity, traders can stabilize their account and begin regaining equity safely.
6. Manage Emotions
Emotional control is critical after a drawdown. Fear of further losses can cause hesitation, while frustration can lead to revenge trading.
Techniques to Stay Emotionally Balanced:
Take a short break from trading if emotions are high
Practice mindfulness or visualization to reinforce discipline
Review your trading plan and remind yourself of the rules
Focus on process, not outcomes
Traders in Pax Market Funds understand that psychological resilience is as important as technical skill in recovering from drawdowns.