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Drawdown

The decline from an account's peak value to a subsequent low, usually expressed as a percentage.

An equity curve and its drawdownAn account balance rising over a year, falling from a peak to a trough, then climbing back to the old peak.ACCOUNT EQUITY$20k$12k$8k024681012TIME (MONTHS)PEAK $16,000TROUGH $12,000DRAWDOWN−25%RECOVERY
Equity curve and drawdown. An account balance plotted month by month. The fall from the $16,000 peak to the $12,000 trough is a 25% drawdown, and the shaded area lasts until the balance climbs back to the old peak.

Every trader has drawdowns; the question is how deep and how long. Drawdown is measured from the highest equity point (the high-water mark), and the recovery needed grows faster than the loss: -10% needs +11%, -25% needs +33%, -50% needs +100%.

prop-firms enforce a daily-drawdown and a max-drawdown as hard limits. Personal traders should set their own.

Example: an account grows from $10,000 to $12,000, then falls to $10,200. The drawdown is $1,800, or 15% from the peak, even though the account is still above its start.

Related: max-drawdown, daily-drawdown, risk-of-ruin, risk-management

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