Risk management · Intermediate

Understanding Drawdown

A 1-minute lesson from the MarketPro academy, one of 22 in risk management.

Last reviewed 15 September 2026 by the MarketPro research desk · Editorial policy

Short answer

Drawdown is the decline from an equity peak to the following trough, usually in percent. If an account grows to 12,000 USD then falls to 10,200, that is a 15% drawdown.

What drawdown is

Drawdown is the decline from an equity peak to the following trough, usually in percent. If an account grows to 12,000 USD then falls to 10,200, that is a 15% drawdown. Maximum drawdown — the deepest such fall — is one of the most honest statistics about any strategy or signal history, and it is a number every trader should know for their own account.

The brutal arithmetic of recovery

10% down needs +11.1% to recover
25% down needs +33.3%
50% down needs +100%
75% down needs +300%

Losses hurt more than symmetrical gains help. This asymmetry is the mathematical case for small per-trade risk: the deeper the hole, the disproportionately harder the climb out.

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Not investment advice. Past performance is not indicative of future results.

Expect drawdowns — plan for them

Every strategy, including profitable ones, spends much of its life below a previous equity peak. Losing streaks are a statistical certainty: even with a 60% win rate, a streak of five losses is likely within a few hundred trades. If your risk per trade is 1%, that streak is about a 5% drawdown — annoying. At 5% risk it is over 22% — dangerous, financially and psychologically.

Practical rules

Decide in advance a personal maximum drawdown (for example 15%) at which you stop, review your journal and reduce size.
Never increase risk to win back losses faster — that is how drawdowns become terminal.
When evaluating any performance record, look at its worst drawdown before its returns. Past performance is not indicative of future results.

Step 5 of 10 on Risk Management Mastery

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Run the numbers while this is fresh

The arithmetic in this category has a free calculator on this site, no sign-up and nothing leaves your browser: Position size calculator, Risk of ruin calculator, Drawdown calculator, Profit & loss calculator.

Written and reviewed by the MarketPro research desk

MarketPro is a trading-signal and trading-education app operated by Harajuku Holdings LTD (Cyprus). Our signal desk publishes and tracks every trade idea in-app, and every page here is checked against the app's live behaviour before publishing. Last reviewed 15 September 2026. How we produce signals and content · About MarketPro

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Not investment advice. Past performance is not indicative of future results.