Drawdown measures a single consecutive loss from the highest point of equity to its lowest point, ending as soon as profit is earned. Maximum drawdown is defined as the largest measure of drawdown during a time period and/or since the creation of the strategy.

Larger maximum drawdowns likely signal a higher risk for losing capital.

Drawdown is calculated based on cumulative return changes; as cumulative returns are based on equity, drawdown calculations include closed and open orders.

Drawdown is displayed in the strategy overview and clicking on the information icon will show you a small description of the parameter.

Note: Drawdown data is updated every hour.

The maximum drawdown formula

Max drawdown metric is generally calculated as such:

Drawdown 1 = (equity at the end of the drawdown 1 - equity before the drawdown 1)/equity before the drawdown 1

Drawdown 2 = (equity at the end of the drawdown 2 - equity before the drawdown 2)/equity before the drawdown 2

Get maximum from drawdown 1 and drawdown 2

An example of maximum drawdown

Let’s take a look at this formula in action:

The vertical metric shows strategy equity, while the horizontal metric shows the steps outlined below.

1. A strategy had a starting equity of USD 1 000.
2. The strategy provider earned USD 200 in profits, so the equity became USD 1200.
3. The strategy provider withdraws USD 200, setting equity to USD 1 000. Deposits, transfers, and withdrawals do affect equity, but are never included in drawdown calculations.
4. The strategy provider incurs loss of USD 300, so equity drops to USD 700. This begins a drawdown movement.
5. The strategy provider incurs further loss of USD 500; equity is now USD 200 while the drawdown continues.
6. The strategy provider earns USD 900 profit, bringing equity to USD 1 100.

The drawdown movement ended with equity at USD 200, as strategy experienced profit from this amount. The first drawdown is calculated USD 200 - USD 1 000) / USD 1 000 = -80%.

7. The strategy provider incurs a loss of USD 200, bringing equity to USD 900 beginning another drawdown movement.
8. The strategy provider incurs further loss of USD 300, making equity USD 600 and continuing the drawdown.
9. The strategy provider earns USD 600 profit, bringing equity to USD 1 200.

Again, profit ends the drawdown movement. The second drawdown is calculated USD 600 - USD 1 100) / USD 1 100 = -45.45%.

The first drawdown was -80%, bigger than the 2nd drawdown of -45.45%. Therefore the maximum drawdown for this strategy is -80% during this time period.

Please note: as maximum drawdown is a percentage, it is limited at a maximum of -100%.