Drawdown

Basics

Drawdown is the decline from a peak in your account equity to its subsequent low, usually stated as a percentage, and it measures how much you were down before recovering.

Key facts

Measured asPeak-to-trough, in percent

Recovery is asymmetricDown 20% needs +25% back

Watched byEvery prop firm

RelatedTrailing drawdown, position sizing

The asymmetry that surprises people

Drawdown recovery is not symmetric, and that catches new traders out. A 10% loss needs about 11% to recover, a 20% loss needs 25%, and a 50% loss needs a full 100% just to get back to even. The deeper the hole, the more the required gain outruns the loss, which is exactly why keeping drawdowns shallow matters more than chasing big returns.

You do not need to make a lot to win. You need to avoid the holes that take a lot to climb out of.

Why it is the number that matters

Drawdown is the honest measure of a strategy's risk, because it captures the worst the account felt, not the smooth average. It is also the metric every prop firm builds its rules around, since a shallow drawdown is what proves you can be trusted with capital. Sizing each trade so no single loss digs a deep hole is the quiet discipline behind a healthy drawdown.

Related terms

Position sizing R-multiple Discipline

Do the math

Drawdown Recovery Calculator

The gain it takes to climb back →

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