Drawdown explained: how deep is normal, and the maths of recovery
- What drawdown is, and the difference between balance and equity drawdown
- Why losses are harder to recover than they look
- How to judge a strategy or provider by its drawdown, not just its return
Drawdown is the drop from the top
Drawdown is how far an account has fallen from its highest point before it makes a new high. If an account grows to $12,000 and then falls to $10,200, the drawdown is $1,800, or 15%. The maximum drawdown is the deepest such fall in its whole history.
Balance or equity?
Balance drawdown only counts closed trades. Equity drawdown also counts open trades' floating losses, and it's the honest one. A trader who never closes a losing trade can show a smooth balance while the equity is deep underwater. Prop firms measure your limits on equity for exactly this reason.
The maths of recovery
Losses and gains aren't symmetrical. Lose 50% and you need +100% just to get back to where you started.
| Drawdown | Gain needed to recover |
|---|---|
| 10% | +11.1% |
| 20% | +25.0% |
| 30% | +42.9% |
| 50% | +100% |
| 75% | +300% |
This is why protecting the downside comes first: a 20% drawdown is a setback, a 50% one is a project.
How deep is normal?
Every strategy has losing streaks. At a 50% win rate, over 100 trades the longest run of losses you should expect is around 6 to 7 in a row, and longer runs happen. At 1% risk per trade that's a drawdown of about 6–7%; at 5% risk it's around 30%. So the depth of your drawdowns is mostly decided by your risk per trade, not by the market.
Judging results by drawdown
A provider showing +80% in a year sounds great until you see a 60% maximum drawdown: their followers nearly lost everything on the way. Compare return against maximum drawdown: +30% with a 10% drawdown is usually a far better result than +80% with 60%. Look at how long the drawdowns lasted, too. Months below a previous high test any follower's patience.
Try it
- Judging a strategy by its return alone.
- Increasing size to "win it back faster" during a drawdown: the recovery maths gets worse, not better.
- Trusting a smooth balance curve while losing trades are left open.
How this works when you copy trades
Check yourself
- Drawdown is the fall from a peak; maximum drawdown is the worst one ever.
- Recovery needs more than the loss: −50% needs +100%.
- Your risk per trade sets how deep your normal drawdowns will be.