Maximum Drawdown Explained for Retail Traders
Two traders can have the same profit and the same win rate, yet one of them nearly blew up along the way. The number that tells them apart is maximum drawdown — the deepest fall your account took from a high point to the low that followed. Here is what it measures and why it matters more than most beginners think.
What drawdown is
Drawdown is the decline from a peak in your account to the lowest point before a new peak is made. Maximum drawdown is the largest such decline over the period you are looking at. It is usually shown as a percentage — for example, a 20% maximum drawdown means that, at the worst stretch, your account was 20% below its previous high.
Maximum drawdown vs a single losing trade
A losing trade is one bad result. Drawdown captures the cumulative pain of a losing run — the string of trades that drag your account down before it recovers. That distinction matters because it is the run, not any single loss, that breaks accounts and confidence.
How it is measured in TradingJournal
TradingJournal builds a running equity curve from your closed trades and tracks how far it falls from each high point. Because it follows your trades in sequence, it reflects the order things actually happened in — which is the only way drawdown makes sense.
Note: this is based on your closed-trade results, not a live feed of open-position equity. It measures the realised path of your account, not intraday floating swings on open trades.
Why averages mislead here
Drawdown is path-dependent: the sequence of trades changes the answer. Five losses in a row hurt far more than the same five losses scattered between wins, even though the average loss is identical. This is why you cannot judge risk from an "average loss" figure alone — you have to look at the worst actual run, which is what maximum drawdown gives you.
The recovery math (why deep drawdowns are dangerous)
Losses and the gains needed to recover them are not symmetrical. The deeper the hole, the disproportionately bigger the climb out:
| Drawdown | Gain needed to get back to even |
|---|---|
| 10% | 11% |
| 20% | 25% |
| 30% | 43% |
| 50% | 100% |
| 75% | 300% |
This is why controlling drawdown — through position sizing and rules like a maximum daily loss — matters more than chasing a high win rate.
What counts as a "good" drawdown
There is no universal number; it depends on how much risk you take per trade and how you tolerate losing runs. The useful habit is to watch your own maximum drawdown over time and ask whether you could sit through it again without abandoning your plan. If the honest answer is no, the fix is usually smaller risk per trade, not a different strategy.
Use it with your other metrics
Read maximum drawdown next to your profit factor and win rate. A strategy is only as good as your ability to survive its worst stretch — and building rules to limit that stretch is exactly what trading discipline is for.
Know your worst run before it finds you
Import your history and see your real maximum drawdown, plotted from your actual trade sequence — free.
Get started freeRelated: Profit Factor Explained · Win Rate Is Not the Whole Story