Drawdown
The peak-to-trough decline in account equity from a high point to the subsequent low before a new high is reached.
Drawdown% = (Peak Equity − Trough Equity) / Peak Equity × 100
Drawdown measures how far your account has fallen from its most recent peak. It tells you the psychological and financial cost of a losing streak — even a strategy with a strong long-run edge will experience extended drawdowns.
Expressed as a percentage: a $10,000 account that dips to $8,500 before recovering has experienced a 15% drawdown. Drawdown is not just about money — extended drawdowns erode discipline and lead traders to abandon good strategies at the worst time.
On the desk
Account peaks at $12,000, then loses six consecutive trades falling to $9,600. Drawdown = ($12,000 − $9,600) / $12,000 = 20%. The account must then gain 25% just to return to the high-water mark.