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Drawdown is a measure of peak-to-trough decline, usually given in percentage form. In trading, drawdown refers to the reduction in your trading account from a trade or a series of trades.

For instance, your trading account is initially at $10,000 then you lost $2,500 today and $2,500 the next day. Your account would then be at $5,000 and you would’ve had a 50% drawdown. In other words, a drawdown measures how much you’ve lost before you get your account back to par. But with a $5,000 remaining balance, you’d need to win another $5,000 to bring your account back to breakeven … That’s a 100% gain!

Knowing your trade’s drawdown is an important part of risk management. Traders usually take note of their maximum drawdown, which is the largest top-to-bottom loss incurred under a trading strategy. While “Maximum Drawdown” sounds like your typical summer blockbuster movie, it ain’t cool since it basically measures your biggest losing streak!

"Success usually comes to those who are too busy to be looking for it."
Henry David Thoreau
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