Subtle & customizable audible cues to indicate when charts turnover, plus world clocks for any market — by & for professional traders
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Subtle & customizable audible cues to indicate when charts turnover, plus world clocks for any market — by & for professional traders
Open the appGuidance last reviewed 2026-08-19
Drawdown is the distance from a peak in your account to the lowest point that follows before a new peak is made. Maximum drawdown is the largest of those falls in a record.
It is the most honest number in trading, because it is the only one that measures what a strategy costs to hold rather than what it produced. Returns are what you get afterwards. Drawdown is what you sit through.
| What it measures | The largest peak-to-trough fall before a new high |
| The recovery maths | A 50% fall needs a 100% gain to get back |
| Depth vs duration | Time underwater is what people actually quit over |
| The sample-size trap | Longer records show bigger maximums, automatically |
| What it cannot tell you | Anything about the next one |
Take the running high-water mark of your account. Drawdown at any moment is how far below that mark you currently are, in per cent or in currency.
Drawdown = (peak value − current value) ÷ peak value
A few consequences fall straight out of that definition and catch people:
A new peak resets it to zero. Drawdown is measured from the highest point so far, so a single new high ends the drawdown regardless of what happens next.
It is not the same as a losing streak. Six losing trades that never take you below a previous peak produce no drawdown at all. One losing trade after a new high does.
Closed-trade and open-equity drawdown differ. Measured on closed trades only, a position held through a large adverse move contributes nothing until you close it. Measured on account equity, it shows up immediately. ⚠️ The second is what your broker shows and what you actually felt — and it is usually the larger of the two. A journal reporting the first will flatter you.
Losses and gains are not symmetrical, because the gain has to work on a smaller base.
| Drawdown | Gain needed to recover |
|---|---|
| 10% | 11% |
| 20% | 25% |
| 30% | 43% |
| 40% | 67% |
| 50% | 100% |
| 60% | 150% |
| 75% | 300% |
| 90% | 900% |
⭐ This is the single most useful table in trading and the most ignored. The curve is gentle up to about 20% and then turns viciously. It is why professionals treat 20% as a serious number and 50% as close to terminal — not because 50% is unrecoverable in principle, but because doubling an account is a year's work or more for most people, and doing it just to get back to level is a hard thing to keep turning up for.
It also explains why risk per trade is small. Not because small risk is timid, but because the cost of being wrong compounds against you faster than being right compounds for you.
Almost every platform reports drawdown depth. Very few report how long it lasted.
A 20% drawdown recovered in three weeks and a 20% drawdown that took fourteen months are not the same event. They are identical on every report and completely different to live through. The second one is where people quit, change method, or start trading larger to make it back.
Two figures worth having:
⭐ The Ulcer Index is the one common measure that counts duration, which is why it deserves more attention than it gets.
This is the part that is genuinely counter-intuitive, and getting it wrong is expensive.
Maximum drawdown grows with the length of the record even when nothing about the strategy changes. It is an extreme value — the worst single observation — and the longer you sample any random-ish process, the worse the worst gets. A method that has shown a 12% maximum drawdown over 200 trades has not demonstrated a 12% ceiling. It has demonstrated that 12% was the worst of its first 200.
⚠️ So a historical maximum drawdown is a LOWER bound on what to plan for, not an upper one. Treating it as a limit — sizing so that the historical maximum is survivable and no more — is planning for a number you have already been told will be exceeded.
⭐ A rough working habit many traders adopt is to assume the future worst is somewhere around one and a half to two times the historical worst, and to size so that figure is survivable. That is a convention rather than a finding, and its value is in the direction it pushes you rather than the exact multiple.
The same drawdown expressed three ways answers three questions.
Per cent is the one that compounds and the one the recovery table applies to. Use it for anything about survival.
Currency is what you feel, and what makes an abstract percentage real. 18% is a shrug; the same number in money is often not.
In R is the one that tells you whether anything is wrong. A drawdown of 8R when you risk 1R per trade means eight units of planned risk went against you — which, depending on your win rate, may be entirely ordinary. ⭐ Expressing drawdown in R is what separates "this is a bad run" from "this is broken", and it is the version almost nobody looks at.
Whether the next one will be worse. See above — it probably will be, eventually.
Whether it was caused by the method or by you. A drawdown from ordinary variance and a drawdown from abandoning your rules look identical on the equity curve. The R-multiples tell them apart: losses coming in larger than −1R mean stops moved, and that is a different problem from a rough patch.
Whether it is statistically unusual. For that you need the distribution of your results, not a single extreme from it — see how many trades you need.
How long you can stand it. The number that decides whether a method works for you is not on any report.
| Term | Meaning |
|---|---|
| High-water mark | The highest account value reached so far |
| Peak-to-trough | From a high point to the following low |
| Underwater | Any period spent below a previous peak |
| Time to recovery | How long a drawdown took to end |
| Closed-trade drawdown | Measured on completed trades only |
| Open-equity drawdown | Measured on account value including open positions |
| Extreme value | A statistic that is the worst or best single observation |
Maximum drawdown is the denominator in Calmar, MAR and Sterling — those ratios are all "return per unit of worst-case pain".
For the trade-level numbers that produced the curve, see Trading Performance Metrics Explained. For whether the curve rose steadily or in lumps, see What is the K-Ratio?.
Where a threshold is described as a rule of thumb it is a convention rather than a finding, and platforms differ in whether they measure drawdown on closed trades or on account equity.
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