The drawdown is a measurement of a single consecutive loss from peak-to-trough, or in other words, a drawdown begins when a downturn begins and ends when an uptick is recorded.

Maximum drawdown shown in any strategy is the greatest loss from peak-to-trough incurred by the strategy during a selected time period (month by month).

### 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 balance, while the horizontal metric shows the steps outlined below.

- A strategy had a starting balance of
**USD 1 000**. - The strategy provider earned USD 200 in profits, so strategy equity became
**USD 1200**. - Then the strategy provider incurred a USD 300 loss, so strategy equity became
**USD 900**. This is the beginning of a drawdown as the equity before the drawdown was USD 1200. - Next, the strategy provider made a loss of USD 500, so strategy equity became
**USD 400**; the drawdown continued. -
The strategy provider then makes USD 900 profit. So the 1st drawdown ended with equity at the end of the drawdown at

**USD 400**(strategy had growth after this figure).1st drawdown is USD 1200 - USD 400 = USD 900

- Then the strategy provider made another USD 200 loss, so strategy equity became
**USD 1100**marking the beginning of another drawdown movement since equity was previously USD 1300. - Next, the strategy provider makes a loss of USD 300, so strategy equity becomes
**USD 800**; the drawdown continues. -
The strategy provider then makes USD 600 profit, raising their equity to

**USD 1 400**. This ends the 2nd drawdown when equity was at**USD 800**.2nd drawdown is USD 1300 - USD 800 = USD 500

The 1st drawdown was USD 900, that is bigger than the 2nd drawdown of USD 500, so it is considered the maximum drawdown; the largest consecutive loss within a designated time period.

Please note: Maximum drawdown can amount to more than the initial balance if the profits climb high enough first before losses total more than the starting balance.