Maximum drawdown

What it measures

Maximum drawdown is the largest fall in an account’s value from a peak to the lowest point that follows it, before a new peak is reached. It is usually shown as a percentage of the peak:

drawdown = (trough − peak) ÷ peak

An account that climbs to 12,000, falls to 9,600 and then recovers has a drawdown of 2,400 ÷ 12,000 = 20%, however high it goes afterwards. The maximum drawdown is simply the worst of these episodes over the whole history.

Return tells you what you might gain. Drawdown tells you what you will have to sit through to get it, and most people leave a strategy during a drawdown, not during a rally.

The recovery asymmetry

Losses and gains are not symmetrical. After a fall, the account is smaller, so the same percentage gain rebuilds less of it. The gain needed to get back to the old peak is the loss divided by what is left:

Drawdown	Gain needed to recover
10%	11.1%
20%	25.0%
30%	42.9%
50%	100.0%

The deeper the fall, the steeper the climb back. This is why controlling drawdown matters more than squeezing out extra return: a strategy that avoids the 50% row never has to double just to stand still.

Duration matters as much as depth

A track record usually shows how deep the worst drawdown was, but not how long it lasted. Look at the equity curve and measure the time from the old peak to the new one.

A 20% fall that recovers in three weeks and a 15% fall that takes nine months to recover are very different experiences. The second one is shallower on paper and much harder to live through, because every month you look at your account and it is still below where it was.

Translate it into euros

Percentages feel abstract until they are your money. Before connecting to any strategy, multiply its maximum drawdown by your planned deposit.

On a 10,000 euro account, a 25% drawdown means seeing 7,500 on the screen at the lowest point. Our Mr. Enzo strategy page states this openly: in its worst modelled scenario the account value can fall temporarily by about 25% while positions wait for the market to confirm direction. Knowing that number in euros, in advance, is what lets you stay calm when it happens.

Balance drawdown hides the real risk

An account has two values. The balance counts only closed trades. The equity adds the profit or loss of trades that are still open. A strategy that holds a losing position for weeks can show an untouched balance while its equity is deep in the red.

That is why the drawdown worth looking at is the one measured on equity. Myfxbook measures drawdown three ways, at the end of each day, intraday on every update, and from the growth curve, and displays the highest of the three. If a track record elsewhere quotes only a balance-based drawdown, the real figure is almost certainly larger.

What is acceptable

There is no universal right number. Two practical comparisons help:

• Drawdown against annualised return. A strategy returning 20% a year with a 10% maximum drawdown is working far more efficiently than one returning 25% a year with a 40% drawdown.
• Drawdown against your own limit. Decide, in euros, the fall you could watch without disconnecting. If a strategy’s history has already exceeded it, the history is telling you something.

The acceptable number also depends on what is being traded. Gold moves more in a day than a major currency pair and less than a single share or a crypto CFD, so the same rules produce deeper drawdowns on a volatile instrument than on a calm one. Read a track record against its instrument. A tiny maximum drawdown alongside a meaningful return on a leveraged gold strategy usually means a short history rather than a safe strategy. A drawdown in the twenties, like the one stated for Mr. Enzo above, is the ordinary price of that return profile. One approaching half the account says the sizing was wrong, whatever the return that came with it.

Remember that maximum drawdown is the worst that has happened so far, not the worst that can happen. A longer track record makes it more meaningful, which is one reason account age matters so much.