Retracement can be simply understood as a decline in the price of a stock or fund after it reaches a higher price within a period of time.

If the maximum retracement occurs within a period of time, it is called the maximum retracement. Users should pay special attention to the retracement of stock prices when investing in stocks. Drawdown is a term commonly used in daily trading and refers to a decrease in account funds. It is something that everyone needs to accept that some transactions may lose money, so naturally, capital drawdowns are also a fact that people must accept.

Retracement takes up a large portion of trading, even during extended profit periods. Stock retracement refers to the reduction of assets during the transaction process. The retracement is equal to the risk faced by investors during the investment process. Generally speaking, the lower the retracement, the better. The lower the retracement, the smaller the risk.

Main reasons for stock retracement:

1. Retracement caused by stock price fluctuations;

2. Retracement caused by company performance;

3. Retracement caused by black swan events;

4. Retracement caused by dealer shipments.

It is precisely because of the existence of retracements, or large retracements and long-term retracements, that a large number of unsteady traders waver, make wrong moves, and get into trouble. This is the right time. It is the best time for mature traders to clean up their opponents; it is precisely because of the existence of retracement or large retracement and long-term retracement that ordinary traders mistakenly think that their trading system has failed and give up one after another. When they give up , this system has actually ended the retracement period and entered the profit track, and traders who know how to use retracements are always in an invincible position. In the field of capital profit and loss ratio, it is not enough to just look at the capital return rate, but also the capital drawdown rate. If the capital return rate is 85% and the drawdown rate is 10%, then the income to drawdown ratio: capital return rate / Fund retracement rate = 8.5, the ratio is ideal. The larger the ratio, the stronger the profitability of the person. There are three main ways for private equity fund managers to control drawdowns: stock selection, hedging and position control. Choosing stocks with a margin of safety is the first priority in controlling drawdowns. A-share retail investors account for a large proportion, and the overall market sentiment fluctuates violently. Any concept or theme, whether true or false, as long as it is new and dazzling enough, can cause huge speculation in the short term, but it is often followed by a sharp fall. The game of drumming and passing flowers is undoubtedly a disaster for investors who are not quick with their hands and feet. Therefore, institutions such as Danshui Quan and Gao Yi advocate reverse investment, pay attention to the margin of safety, conduct in-depth research and buy ginseng at "radish prices", thus avoiding the panic that is almost inevitable after the drumbeat stops.

When fund managers firmly believe in the value of the stocks they hold and face systemic risks, hedging using stock index futures is almost the best way to control risks. During the stock market crash, various types of stocks gathered together, and the use of stock index futures was restricted. Position control became the last valve to control the drawdown.