TRADING PERFORMANCE GLOSSARY
Maximum drawdown
Maximum drawdown describes the worst peak-to-trough decline in an equity sequence. It is path-dependent: the order of values matters, and deposits or withdrawals should be separated from trading performance when possible.
Updated August 31, 2026 · Educational information onlyTHE FORMULA
Drawdown % = (peak equity − later trough equity) ÷ peak equity × 100
Use consistent units and state how breakevens, fees, and incomplete trades are treated.
WORKED EXAMPLE
See the calculation.
For an equity path of $10,000 → $11,500 → $10,800 → $9,200 → $10,400, maximum drawdown is $2,300, or 20%, from $11,500 to $9,200.
HOW TO INTERPRET IT
Ask what the number leaves out.
- Report both the absolute decline and the percentage relative to the peak.
- Recovery time requires dates and is a separate measurement.
- Historical maximum drawdown is not a ceiling on a future loss.
COMMON MISTAKES
Keep comparisons honest.
- Sorting balances instead of preserving chronological order.
- Including cash deposits or withdrawals as if they were trading returns.
- Starting from cumulative P&L without a meaningful equity baseline.