Glossary
Drawdown
The fall of an equity curve from its previous peak. Maximum drawdown is the largest such fall over a period, measured in our ledger in R.
Drawdown measures how far results fall from their best point before recovering. Maximum drawdown is the deepest of those falls over a period.
Example
A record rises to +12 R, then a run of losing trades takes it to +4 R before it recovers. The drawdown from the peak is 8 R. If you risk 1% of your account per trade, an 8 R drawdown is roughly an 8% fall, before costs.
Why it matters
Maximum drawdown tells you how painful the worst stretch was. Future drawdowns can be deeper than past ones, so size your risk with that in mind.