Drawdown
The fall from an equity peak to the trough after it — the pain metric that decides whether you keep trading.
What it means
Drawdown measures decline from a high-water mark: run $10,000 to $12,000, sink to $9,600, and you are in a 20% drawdown. Maximum drawdown is the deepest such valley in the record — the number that tells you what living with this system felt like at its worst.
It is also compounding's dark side: −20% needs +25% to recover, −50% needs +100%. Systems are abandoned in drawdowns more often than they actually fail — sizing so the expected drawdown is emotionally survivable is a performance decision, not a comfort one.
Why traders care
- The most honest single risk number a track record has.
- Sets position sizing from the survival side, not the greed side.
Related terms
Educational content, not investment advice. Engine details describe how TraderWe computes this value; other platforms may define it differently.