What is Drawdown?

The decline from an account's peak to its lowest point after — the true measure of how much pain a strategy inflicts.

Drawdown is the drop in account value from a peak to the lowest point that follows, usually expressed as a percentage. If an account grows to $12,000 and then falls to $10,200 before recovering, it suffered a 15% drawdown. Every real strategy has drawdowns, because every real strategy has losing streaks — the question is never whether they happen, but how deep they go. Maximum drawdown is one of the most honest statistics in trading, far more revealing than a headline return figure.

Drawdown matters because recovery is asymmetric: a 10% loss needs an 11% gain to break even, but a 50% loss needs 100%. This math is why professionals cap risk per trade — at 1% risk, the standard P4 Provider teaches, even ten straight losses leave a dent under 10%, which a normal run of trades can repair. Deep drawdowns also break traders psychologically, pushing them into oversized revenge trades that turn a rough patch into ruin.