What is maximum drawdown?

It is the largest peak-to-trough decline in an account or asset, as a percentage of the peak. It measures the worst pain you would have sat through — a key gauge of risk that average return hides.

Why is recovery harder than the drop?

Because you recover from the lower base. A 50% loss needs a 100% gain to break even; a 20% loss needs 25%. The deeper the drawdown, the steeper and more asymmetric the climb back.

Maximum Drawdown Calculator

Peak value ($)

Trough value ($)

Maximum drawdown

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Drawdown asymmetry punishes big losses

A drop always needs a larger percentage gain to undo it, so capping drawdown protects compounding more than chasing upside does. See the full curve on the drawdown recovery calculator.

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The worst peak-to-trough drop in your portfolio — the number risk managers watch

Max drawdown = (trough_value − peak_value) ÷ peak_value × 100. If your account hit $3,200 then fell to $1,800 before recovering, max drawdown is (1800 − 3200) ÷ 3200 = −43.75%. That's the full loss at the worst point regardless of where it ended up.

A 44% drawdown requires a 78.6% gain to recover. Time to recovery depends on your strategy's average return rate — the drawdown recovery calculator shows this. In real trading, drawdown depth is one of the best predictors of strategy abandonment: people stop trading when losses exceed psychological tolerance, locking in the loss permanently.

Targeting a maximum drawdown of 20–25% is common for systematic strategies because it keeps recovery plausible within a year at typical return rates. Allowing 50%+ drawdowns means you need 100%+ returns to recover — which is a different kind of trading entirely.

Slippage Bid-Ask Spread Cost Maker vs Taker Savings Weighted Average Entry Realized vs Unrealized PnL