Maximum Drawdown: How to Measure It, With Examples
One equity series worked row by row: the peak, the gap below it, and why balance and equity give different drawdowns.
3 Nov 2026 · 6 min read
On this page
Maximum drawdown is the largest fall from a high point to the low point after it, before a new high is made. Walk along your account curve, remember the highest value so far, and at every step measure how far below that peak you are. The biggest such gap is the maximum drawdown. It is quoted in money or as a percentage of the peak, and it answers a question profit figures do not: how bad did the worst stretch get?
How to measure it, step by step
Made-up inputs: a $10,000 account and eleven closed trades. After each trade we write the balance, the highest balance so far (the peak), and how far the balance sits below that peak. This is arithmetic, not advice.
| Trade | Result | Balance | Peak so far | Below peak | Below peak, % |
|---|---|---|---|---|---|
| 1 | +$300 | $10,300 | $10,300 | at the peak | 0.00% |
| 2 | −$200 | $10,100 | $10,300 | $200 | 1.94% |
| 3 | +$450 | $10,550 | $10,550 | at the peak | 0.00% |
| 4 | −$350 | $10,200 | $10,550 | $350 | 3.32% |
| 5 | −$400 | $9,800 | $10,550 | $750 | 7.11% |
| 6 | +$250 | $10,050 | $10,550 | $500 | 4.74% |
| 7 | +$500 | $10,550 | $10,550 | at the peak | 0.00% |
| 8 | −$150 | $10,400 | $10,550 | $150 | 1.42% |
| 9 | −$650 | $9,750 | $10,550 | $800 | 7.58% |
| 10 | +$200 | $9,950 | $10,550 | $600 | 5.69% |
| 11 | +$350 | $10,300 | $10,550 | $250 | 2.37% |
The deepest gap is after trade 9: the peak was $10,550 and the balance fell to $9,750, so the maximum drawdown is $10,550 − $9,750 = $800, or $800 ÷ $10,550 = 7.58% of the peak. The balance had not yet got back to that peak by the last trade. The earlier dip, after trade 5, was $750 (7.11%): smaller, so it does not count as the maximum.
Absolute and relative drawdown
Money and percentage tell different stories. $800 off a $10,550 peak is 7.58%; the same $800 off a $5,000 account would be 16%. Relative drawdown (the percentage) is what compares accounts of different sizes. Some platforms and reports also show an absolute drawdown, measured from the starting balance to the lowest point rather than from the highest. On this series the lowest balance is $9,750, so the absolute figure from the start is $10,000 − $9,750 = $250, while the maximum drawdown is $800. Check which one a report is quoting before comparing it with yours. Here the largest percentage drop and the largest money drop fall in the same place; with a growing account they often do not, because the same dollars are a smaller share of a bigger peak.
Balance, equity and floating drawdown
Balance changes only when a trade closes. Equity is balance plus the open profit or loss, so it moves with the price. A drawdown taken from closed trades alone misses what an open position did on the way. Take a trade opened with the balance at its $10,550 peak (made-up path):
| Moment | Balance | Open P&L | Equity | Equity below peak |
|---|---|---|---|---|
| Trade opened | $10,550 | $0 | $10,550 | 0.00% |
| Deepest point while open | $10,550 | −$900 | $9,650 | $900 (8.53%) |
| Trade closed at a smaller loss | $10,250 | closed | $10,250 | $300 (2.84%) |
Measured on the balance, this trade cost $300, a 2.84% drawdown. On equity, the account went $900 (8.53%) below its peak while the trade was open, and that is the number a margin call or a loss limit that watches equity would have seen. If you are asked to stay inside a drawdown limit, find out whether it reads balance or equity, and whether the peak it measures from is fixed or moves up with you. Daily loss and trailing drawdown work through those variants with generic examples.
What maximum drawdown cannot tell you
- It is the worst so far, not the worst possible. A longer record has more room for a deeper one. A figure from 30 trades will usually be beaten by a figure from 300.
- It depends on position size. Trade twice the size and the same trades give roughly twice the money drawdown. Compare drawdown in R or as a percentage, not in dollars.
- It says nothing about time. A drawdown that recovers in three trades and one that lasts three months can have the same depth. Record how long each took.
- Getting out of it is harder than getting into it. A fall of 8% needs a gain of more than 8% to recover; the table in the recovery guide shows by how much.
How to measure your own
- List your balance after every closed trade, oldest first, starting from the first deposit.
- Keep a running maximum next to it, and subtract to get the gap at each step.
- The largest gap is your maximum drawdown; divide by the peak it fell from for the percentage.
- If your platform records equity, repeat on equity, because open positions are part of what you lived through.
We're working on a free journal and a backtester, with no date yet. Today Trepeat is a trade copier for MT4, MT5 and cTrader, currently on demo accounts, and you can add notes, a grade and screenshots to any copied trade once it closes, with a calendar of your results.
The journal exports to Excel (.xlsx) and does not calculate drawdown or any other metric today, so the running maximum above is a column you add to that export. It lists only trades with a journal entry, so check none is missing. See the journal documentation, expectancy, the other metrics and the glossary for terms.
Written by the Trepeat team.