In short. Drawdown is the fall of capital from a previous peak to a subsequent low. Maximum drawdown is the largest such fall over a period, as a percentage of the peak: (peak − trough) / peak. Measure it on equity rather than balance: balance doesn't see the floating loss of open positions. Deposits and withdrawals are not drawdown and must be excluded.
Three ways to measure drawdown
| Method | Formula | Where it is used |
|---|---|---|
| Peak-to-trough (maximum) | (peak − subsequent trough) / peak | account statistics, strategy evaluation |
| From the initial balance (absolute) | (initial balance − low) / initial balance | static loss limit at prop firms |
| Daily | (start-of-day balance or equity − intraday low) / start-of-day base | daily loss limit |
How a prop firm's static limit differs from a trailing one is covered in «Trailing vs static drawdown».
Worked example
Account equity step by step: $10,000 → $11,200 → $9,800 → $10,500 → $9,400 → $12,000.
- The peak before the fall is $11,200, the subsequent trough is $9,400.
- Maximum drawdown = (11,200 − 9,400) / 11,200 = 1,800 / 11,200 ≈ 16.07%.
- Absolute drawdown from the initial $10,000 = (10,000 − 9,400) / 10,000 = 6%.
The same history gives 6% or 16% depending on the method. When you compare strategies or read someone else's stats, always check what the drawdown is measured from.
Balance or equity
Balance changes only when a trade is closed. Equity = balance + floating result of open positions. Example: balance $10,000, an open position is down $800 — equity is $9,200. Balance drawdown is 0%, equity drawdown is 8%.
A trader who keeps losers open and closes only winners sees a «nice» balance curve. Equity drawdown shows the real depth — and it is what prop firm limits are usually based on. More in «Prop firm risk management».
Why a deep drawdown is so expensive
To recover a drawdown you need a gain larger than the drawdown itself: required gain = D / (1 − D), where D is the drawdown as a fraction.
| Drawdown | Gain needed to recover |
|---|---|
| 10% | 11.1% |
| 20% | 25% |
| 25% | 33.3% |
| 30% | 42.9% |
| 50% | 100% |
| 75% | 300% |
The drawdown calculator works out the recovery for your drawdown and the drawdown from a losing streak.
Common calculation mistakes
- Counting deposits as profit and withdrawals as drawdown. A $3,000 withdrawal is not a loss, and a deposit at the bottom «hides» how deep the drawdown went. Cash flows must be excluded.
- Looking only at closed trades. You lose the floating loss — exactly the part that blows accounts.
- Sampling once a day. An intraday low between two snapshots disappears: the real low may be deeper than the daily close values.
- Mixing percent and money. 10% on $5,000 and on $50,000 feel different but mean the same for the strategy.
How Davinchu calculates drawdown
- Account page. Maximum drawdown — from the equity peak to the subsequent low over the selected period, using the account curve and hourly equity snapshots (the high and low of every hour), including the floating loss of open positions. Deposits and withdrawals are not counted as drawdown, and a later rise in equity does not reduce the figure.
- Dashboard. Drawdown of the whole account portfolio — from hourly equity snapshots of all accounts in USD.
- Journal. Trading drawdown from closed trades — in money, percent and R, separately including withdrawals.
- Public account statement. Drawdown is calculated the same way — from the data the owner has opened via the link («Balance», «Trading history»).
How to connect drawdown with your journal and trade reviews — see «How to keep a trading journal in MT5». On the Free plan two accounts connect at no cost.