Drawdown
Also called: Maximum drawdown, Max DD, Peak-to-trough decline, Equity drawdown, Sermaye düşüşü, Maksimum drawdown
Drawdown is the fall from an account's highest value to the lowest point that follows; it's measured in percent from the peak, not from the starting balance.
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What is drawdown?
Drawdown is the decline from your account's highest value to the lowest point after it. It's measured in percent and calculated from the peak, not from the starting balance. If the account went from 10,000 dollars to 12,000 and then down to 9,600, the drawdown is 2,400 dollars, or 20 percent. You're only 4 percent below where you started, but the fall you lived through is 20 percent.
The account stays in drawdown until it makes a new high. The deepest fall recorded is the maximum drawdown, the bluntest measure of how much pain a strategy or a trader can cause. Its length is a separate measure: getting back to the peak can take a few weeks or several years.
Every trader has drawdowns. Some of the best setups still end at the stop, and losses can come in a row. The goal isn't avoiding drawdown but keeping it small enough that it never finishes the account.
The math of drawdown
Losses and recoveries aren't symmetric. An account down 10 percent needs 11.1 percent to get back. A 20 percent loss needs 25 percent, 30 percent needs about 43, and 50 percent needs 100. An account down 75 percent has to quadruple, a 300 percent gain, just to break even.
That's why risk per trade decides so much. Someone risking 1 percent per trade who gets stopped out 10 times in a row is down about 9.6 percent. Someone risking 5 percent loses about 40 percent on the same streak and needs close to 67 percent to recover.
Ten losses in a row sounds unlikely. With a 40 percent win rate, the chance that the next 10 trades all lose is about 0.6 percent. Small, but over a few hundred trades seeing a streak like that somewhere isn't surprising.
Thinking in R helps here. If you risk the same percentage on every trade, you can read drawdown in R. At 1 percent risk, an 8R drawdown is roughly 8 percent of the account. That's how you tell a normal stretch for the system from a warning sign.
Try it on a chart
Drawdown is built from the risk of every trade you take. This chart lets you practise weighing a setup's risk: look at where price sits relative to the drawn levels and where your stop and target would land if you entered.
Your turn: read the chart and make your call.
No sign-up needed. Take a guess; when the chart opens, you'll see why.
The most common drawdown mistake
Trying to win it back right away. A trader in drawdown raises size, takes weaker setups and trades where they should wait. Doubling risk while 20 percent down is the shortest road to 40 percent down. Chasing losses is FOMO showing up on the account statement.
Switching strategies mid-drawdown. Dropping your rules after five losses to try something new means living through every method's normal drawdown at its worst moment. First check whether the drawdown is within the system's known range, and for that you need your past trade records.
Not setting limits in advance. Many traders write a rule before they start, such as "cut risk in half after a 10 percent fall from the peak" or "stop for the day after losing 3R". A rule you try to set in the middle of a drawdown usually never gets set.
What drawdown doesn't tell you
Maximum drawdown is a number from the past. If a system's worst historical drawdown was 15 percent, that doesn't mean it won't be exceeded. The worst drawdown is often the one that hasn't happened yet.
Over a short record it says very little. Twenty trades without a deep fall may just be luck. A meaningful picture takes many trades.
A deep drawdown alone doesn't prove a system is bad either. Low win rate, high ratio systems naturally go through long losing streaks. What matters is whether the drawdown is reasonable given the system's expectancy and your risk per trade.
Count open positions too. Looking only at closed trades you might think you're 5 percent down, while losing open positions make the real drawdown deeper.
Frequently asked questions
How do you calculate drawdown?
Take the lowest value after the account's highest value, subtract it from the peak and divide by the peak. A peak of 12,000 dollars and a following low of 9,600 is a 2,400 dollar fall; 2,400 divided by 12,000 is 20 percent. The measurement stays tied to that peak until the account makes a new high, and the deepest fall in that time is the maximum drawdown.
How much do you need to gain after a 50 percent loss?
100 percent. The recovery has to be earned on the smaller balance that's left, so it always takes a bigger percentage than the loss. If 10,000 dollars falls to 5,000, the 5,000 has to double to get back. A 20 percent loss needs 25 percent, a 30 percent loss about 43. The gap widens quickly as the drawdown deepens.
How do you recover from a drawdown?
Start by cutting risk. Smaller risk per trade means that if the losing streak continues, the account erodes more slowly. Then read your records: are the losses coming from trades that followed your plan or from entries that broke your rules? The first may be a normal stretch for the system; the second is a behaviour problem. Trying to win it all back in one big trade only deepens the hole.
