Profit gets the attention, but drawdown decides whether you survive long enough to keep the profit. For prop firm traders it matters even more, because breaching a drawdown limit can end an account regardless of how well you traded the month before.
What is maximum drawdown?
Maximum drawdown is the largest drop from a peak in your account balance to the lowest point before a new peak. It's measured in money and as a percentage.
Max drawdown % = (Peak − Lowest point after the peak) ÷ Peak × 100
Example
Your account grows to $54,000, then a rough patch takes it down to $49,950 before it recovers to new highs.
Drawdown = $54,000 − $49,950 = $4,050, or $4,050 ÷ $54,000 = 7.5%.
If that's the deepest dip in your history, your max drawdown is 7.5%.
Track drawdown and R on every trade
VOLERON shows your result in R, your equity curve and your drawdown, so you always know how much room you have.
Try VOLERON free for 7 daysWhy it matters
- Recovery is harder than the fall. A 10% drawdown needs about an 11% gain to recover. A 25% drawdown needs 33%. A 50% drawdown needs 100%.
- Funded accounts have hard limits. Most prop firms have a maximum or trailing drawdown, and many have a daily loss limit. Rules differ between firms and change over time, so always check your firm's current rules.
- It shows what you can tolerate. Big drawdowns are when traders abandon good strategies or start revenge trading.
| Drawdown | Gain needed to recover |
|---|---|
| 5% | 5.3% |
| 10% | 11.1% |
| 20% | 25.0% |
| 30% | 42.9% |
| 50% | 100% |
How to keep drawdowns small
- Risk a small, fixed amount per trade. At 0.5% risk, ten losses in a row is about a 5% drawdown. At 2% it's about 18%. See how much to risk per trade.
- Use a daily loss limit. Most large drawdowns are built from a few very bad days, not lots of small ones.
- Cut size during a drawdown. Many traders halve their size after a set drawdown (say 3%) and return to full size at a new equity high.
- Find what causes yours. Look at the trades inside your worst drawdown. Were they one setup, one session, or trades taken right after losses? Our revenge trading guide covers the most common cause.