The largest peak-to-trough decline in account equity over a measured period — the worst losing streak you've ever had.
Max drawdown is the single worst peak-to-trough decline in your account equity over the entire history of the strategy or account. If your account peaked at $20,000 and then dropped to $14,000 before recovering, your max drawdown is 30%. Max drawdown is the most important risk number prop firms, fund allocators, and serious traders track.
The number matters because it tells you how much pain you have to absorb to capture the upside. A strategy that returns 40% per year with a 5% max drawdown is excellent. A strategy that returns 40% per year with a 35% max drawdown is much worse — same returns, way more pain, way higher chance of capitulation.
Live max drawdown is almost always BIGGER than backtest max drawdown. Account for this by sizing for 1.5x-2x the historical figure when going live.
FTMO and other prop firms typically allow 10% max drawdown on their challenges. Traders who blow this number fail instantly — even if they're profitable. Risk control IS the evaluation.
Frequently asked about max drawdown
What is a max drawdown in trading?+
The largest peak-to-trough decline in account equity over a measured period — the worst losing streak you've ever had.
When will I see max drawdown used in real trading?+
On every prop firm scorecard, every strategy backtest, and every fund manager's track record. Max drawdown is the headline risk metric.
What is the most common mistake traders make with max drawdown?+
Comparing strategies on returns without comparing on max drawdown. Two strategies with identical returns can have wildly different drawdowns — and the lower-drawdown one is always the better business.
What do experienced traders know about max drawdown that beginners don't?+
Pros target a max drawdown that's 1/3 of their annual return goal. Want 30% per year? Aim for max drawdown under 10%. This ratio gives you survivable risk and clean compounding.
Read the lesson here. Mark the chart on TradingView. Compare brokers with the checklist.
TradingView is the chart workspace most learners already recognize: watchlists, alerts, drawings, and clean multi-market charts. Broker research stays methodology-first: jurisdiction, costs, platform, withdrawals, and risk before any account decision.