Quick Answer
Drawdown is the decline from a peak in account balance or equity, usually expressed as a percentage. If an account grows to $10,000 and then falls to $8,500 before recovering, the drawdown was 15% — measuring how far the account fell from its highest point, not from where it started.
- Drawdown
- Drawdown = (Peak Value − Trough Value) ÷ Peak Value, expressed as a percentage. It measures the largest observed decline from a high point in account balance or equity to a subsequent low point, before a new peak is reached.
Worked Example
Hypothetical example — not actual performance data
The numbers below are illustrative only and don't represent typical or guaranteed results.
Suppose an account grows from $10,000 to a peak of $12,000, then falls to $9,600 before recovering. Drawdown = ($12,000 − $9,600) ÷ $12,000 = 20%. Even though the account is still above its original $10,000 starting balance, the drawdown is measured from the $12,000 peak, not the starting point — which is why drawdown can look larger than the change from your original deposit would suggest.
Starting Balance vs. Peak Balance
This distinction matters most for prop-firm accounts, where a firm's drawdown rule may be measured from the account's peak balance rather than its starting balance — meaning a trader can breach a drawdown limit even while still profitable overall, if they've given back enough of their peak gains. Always check which measurement a specific rule or provider uses.
Why Drawdown Matters
- It measures risk in a way that raw profit-and-loss doesn't — two strategies with the same final result can have very different drawdown along the way.
- Large drawdowns are harder to recover from mathematically: a 50% drawdown requires a 100% gain just to return to the previous peak.
- Large drawdowns are also harder to sit through psychologically, which can lead to deviating from a strategy at the worst time.
- Many prop firms and risk frameworks set hard drawdown limits, since it's a practical measure of how much capital is at risk.
Key Takeaways
- Drawdown = (Peak − Trough) ÷ Peak, expressed as a percentage.
- It's measured from a peak, not from the starting balance — an account can still be profitable overall while in a meaningful drawdown.
- Recovering from a large drawdown requires a proportionally larger gain (a 50% drawdown needs a 100% gain to fully recover).
- Prop-firm drawdown rules often measure from peak balance specifically — check the exact rule before assuming.
How Wrytics Can Help
Wrytics tracks account balance and equity over time from your logged or MT5-synced trades, so drawdown can be reviewed as part of your overall risk picture alongside win rate, profit factor, and expectancy.