Maximum Drawdown — Return
Largest peak-to-valley decline on the Return equity curve (intraday min-candle based).
- Computed from
- Equity curve
- Scope
- Single report
- Range
- ≤ 0%
- Direction
- Lower is better
Maximum drawdown is the largest peak-to-trough drop from a high-water mark over the whole record — whether or not the account ever recovered from it. It's the single worst losing stretch, the number that tells you how bad it got, and it's usually the first thing a serious allocator looks at.
How it's calculated
drawdown(t) = equity(t) / high_water_mark(t) − 1 Max Drawdown = min over all t of drawdown(t)
- high_water_mark(t)
- the highest equity reached up to time t (also called the running peak)
- drawdown(t)
- how far below that peak the curve is right now (≤ 0)
On the Return curve this is the drawdown of your money-weighted equity — it includes your own deposits and withdrawals in the math. It's the decline you personally lived through.
What it tells you
| Value | Reading | Notes |
|---|---|---|
| 0 to −10% | Shallow | Easy to hold through. |
| −10% to −25% | Normal | Typical for an active strategy. |
| −25% to −50% | Deep | Demands real conviction to sit through. |
| < −50% | Severe | Recovery needs +100% just to break even. |
The recovery math is the cruel part: a −50% drawdown requires a +100% gain to get back to even. Depth compounds against you.
Worked example
Equity peaks at $13,000, falls to $9,750, then later recovers:
Max Drawdown = 9750 / 13000 − 1 = −25%
To climb from $9,750 back to $13,000 requires a +33% gain — already more than the 25% that was lost.
Pitfalls
- Recovered vs still underwater. A max drawdown that recovered long ago is history; one that is still open at the end of the record — the account is below its high-water mark right now — is a live, unresolved loss. The percentage looks the same, but an ongoing drawdown can still get deeper and may never recover. Check whether the curve has made a new high since the trough (see time under water).
- The worst is still ahead. It's the worst event so far, and the realized forward drawdown almost always exceeds it. Treat the historical max as a floor on future pain, not a ceiling — a calm record simply hasn't met its worst day yet.
- Reads deeper than close-to-close figures. Because depth is measured from the intraday low (not the daily close), this number is larger than the close-to-close drawdown on broker statements, Myfxbook, or MT4/5. It's the more conservative figure — don't mistake the gap for an error when comparing tools.
- Says nothing about frequency or duration. Two records with −20% max drawdown can feel completely different, and the single deepest drawdown is often not the longest one. Read it with the Ulcer Index (depth × duration) and time under water.
- Mode matters. Return-curve and P&L-curve drawdowns differ when there are deposits/withdrawals — compare like with like.
Related risk measures
Max drawdown is the headline; its companions add nuance: the Calmar ratio sets return against it, the Ulcer Index blends depth with duration, and the Pain Index measures the average distance below the peak rather than the single worst point.