Drawdown
Drawdown is the peak-to-trough decline in an account's value over a specific period. If an account grows from $10,000 to $15,000 and then falls to $12,000, the drawdown from the peak is $3,000 or 20%.
Formula
Example: Account peaks at $15,000, falls to $12,000: drawdown = ($15,000 − $12,000) ÷ $15,000 = 20%.
Why it matters for traders
Drawdown measures the downside risk of a trading strategy. Large drawdowns are psychologically difficult to recover from and can create revenge trading spirals. Understanding your typical drawdown helps you size positions and manage expectations.
How Tradapt tracks this
Tradapt tracks your equity curve and drawdown in the Analytics section. For prop firm traders, Tradapt's challenge tracking monitors your real-time drawdown against your account's maximum allowed limit.
Track this free in TradaptFrequently asked questions
What is a maximum drawdown?
Maximum drawdown is the largest peak-to-trough decline in your account's history. It represents the worst-case scenario a trader had to survive during the period. Prop firms typically limit maximum drawdown to 5–10%.
How do you recover from a drawdown?
The key is to avoid making the drawdown worse through revenge trading. Reduce position size until you return to your equity curve, review your trades to identify if the drawdown is from random variance or a systematic problem, and adjust accordingly.