Drawdown
A drawdown is the decline of an account or asset from a peak to the following low, in percent. After a 50% drawdown you need a 100% gain just to get back to where you were.
How it works
Drawdown is measured from the peak, not from what you deposited. If your account grows from $1000 to $1500 and then drops to $1200, that is a 20% drawdown even though you are still in profit. Maximum drawdown is the deepest such fall in the whole history of an account or strategy.
The trap is the recovery math: the deeper the drawdown, the disproportionately more you have to earn back. Down 10% needs +11.1%, down 20% needs +25%, down 50% needs +100%, down 90% needs +900%.
Drawdown is used to judge a strategy's risk as much as its profit. Two strategies with the same return are very different if one dipped 10% along the way and the other 60%. You control it with position size, stop losses and avoiding high leverage.
An account grows from $10,000 to $12,000, then falls to $9000. Drawdown: ($12,000 − $9000) / $12,000 = 25%. To get back to $12,000 you need to make $3000 on $9000, which is +33.3%.
You risk 2% per trade and hit 10 losses in a row. If risk is based on your current balance, the account ends at 0.98¹⁰ ≈ 81.7% of the start: about an 18% drawdown. At 10% risk per trade the same streak would leave about 35% of the account.
After a drawdown, beginners try to win it back fast by raising size or leverage. That turns a 20% drawdown into 60%. Do the opposite: after a losing streak, cut your risk per trade, take a break and review your trades in a journal.
Questions and answers
What is a drawdown in simple terms?
It is how far your account fell from its highest point to the lowest point after it, in percent.
What is an acceptable drawdown?
There is no single number. Many traders aim to keep maximum drawdown within 10–20%, because recovering from deeper falls gets much harder.
How do you calculate maximum drawdown?
Find the account's highest peak and the lowest low after it. Divide the difference by the peak value and multiply by 100%.
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Updated: 2026-10-19