Maximum Drawdown (MDD)
Maximum drawdown (MDD) is the largest peak-to-trough decline in an account or portfolio during a specific period. It measures the worst case a trader had to endure and is used by prop firms as a risk limit.
Formula
Example: Account peaks at $20,000, falls to $16,000 at its worst before recovering: max drawdown = 20%.
Why it matters for traders
Maximum drawdown is the primary metric prop firms use to control risk. Most FTMO, TopStep, and other funded programs limit maximum drawdown to 5–10% of the account. Understanding your historical MDD helps you predict how a strategy will behave in difficult conditions.
How Tradapt tracks this
Tradapt tracks your max drawdown and shows it in the Analytics section. For prop firm accounts, the challenge tracking feature alerts you when you are approaching your firm's maximum drawdown limit.
Track this free in TradaptFrequently asked questions
What is the difference between drawdown and maximum drawdown?
Drawdown refers to any decline from a peak. Maximum drawdown is the largest single drawdown that occurred over the entire period being evaluated.
What is a good maximum drawdown for a trading strategy?
For prop firm trading, maximum drawdown below 5% is required by most firms. For personal trading, a rule of thumb is to target a max drawdown below 20% for strategies you intend to trade long-term.