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

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

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

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