What Is Drawdown in Trading?
Drawdown measures how far an account has fallen from its best point — the single most honest description of what a strategy felt like to trade. Two systems with the same total profit can have completely different drawdowns, and the deeper one is much harder to live with and much harder to recover from. This guide explains how drawdown is measured, what the three drawdown figures in a MetaTrader report mean, and the uncomfortable arithmetic of recovery.
Key takeaways
- Drawdown is the decline from an equity peak to a subsequent trough, usually quoted as a percentage of the peak.
- MetaTrader reports three figures: absolute (drop below starting balance), maximal (largest peak-to-trough drop in money), and relative (largest drop in percent).
- Recovery is asymmetric: a 20% drawdown needs a 25% gain to break even, and a 50% drawdown needs 100%.
- Equity drawdown includes floating P/L of open positions, so it is usually deeper than balance drawdown — and it is what triggers margin calls.
- Tracking drawdown per strategy, instrument or time period shows where risk actually concentrates in your own trading.
A peak-to-trough decline
A drawdown begins the moment an account makes a new high and starts falling from it, and it ends only when that high is exceeded again. It is measured from the peak (the highest point so far) to the trough (the lowest point before a new high), and quoted either in money or — more usefully — as a percentage of the peak.
Drawdown % = (peak − trough) ÷ peak × 100
- peak
- highest balance or equity reached so far
- trough
- lowest point before a new high is made
The largest such decline over a whole trading history is the maximum drawdown — the headline number used to compare how rough the ride of two strategies was, independent of how much they made.
The three drawdown figures in a MetaTrader report
MT4 and MT5 reports (and the Strategy Tester) show three related but different values, and they are easy to mix up:
Absolute drawdown
How far the balance fell below the initial deposit. If a 10,000 account never dips under 9,600, absolute drawdown is 400 — even if it later falls thousands from a higher peak.
Maximal drawdown
The largest peak-to-trough fall in account currency, wherever it happened. This is usually the number people mean by “max drawdown” in money terms.
Relative drawdown
The largest peak-to-trough fall as a percentage of that peak. Most comparable across account sizes, and the figure most analytics dashboards highlight.
Why recovery becomes harder the deeper you fall
Losses and the gains needed to repair them are not symmetric, because the recovery has to be earned on a smaller base. The required gain grows slowly at first, then very fast:
| Drawdown | 10,000 falls to | Gain to recover | Required gain |
|---|---|---|---|
| 10% | 9,000 | back to 10,000 | +11.1% |
| 20% | 8,000 | back to 10,000 | +25.0% |
| 33% | 6,700 | back to 10,000 | +49.3% |
| 50% | 5,000 | back to 10,000 | +100% |
| 75% | 2,500 | back to 10,000 | +300% |
This asymmetry is the quantitative argument for risking small, consistent amounts per trade: keeping drawdowns shallow keeps the cost of recovering from them roughly linear, while deep drawdowns require outsized — and usually riskier — performance to repair. The Drawdown Recovery Calculator charts this curve for any input.
Balance drawdown vs equity drawdown
Drawdown can be computed on balance (which only changes when trades close) or on equity (balance plus the floating P/L of open positions). Equity drawdown is the stricter measure: a strategy that holds losing positions for a long time can show a smooth balance curve while its equity curve dips far below it.
Equity is also what the broker uses for margin calculations, so the equity drawdown — not the balance drawdown — is what gets accounts into margin trouble. The difference between the two curves is covered in the equity vs balance guide.
Using drawdown in your own trade review
A single max-drawdown number describes the whole account, but the useful detail is in the breakdown. Reviewing drawdown per strategy, per instrument and per period shows where the pain actually came from: one EA having its worst month, one pair, one news week. That turns an abstract risk number into a concrete decision — resize, pause or accept.
Reading a drawdown breakdown
- Account relative drawdown over the quarter: 18%.
- Strategy A (trend EA): −4% drawdown, steady.
- Strategy B (mean reversion EA): −16% drawdown, concentrated in two weeks.
- Manual trades: −3% drawdown.
- Conclusion: the account-level 18% is almost entirely strategy B — the review question is about B's sizing, not the whole account.
Frequently asked
What is the difference between balance drawdown and equity drawdown?
Balance drawdown only updates when trades close; equity drawdown also counts the floating profit or loss of open positions. Equity drawdown is usually deeper and is the figure that matters for margin, because margin level is calculated from equity.
What do the three drawdown values in a MetaTrader report mean?
Absolute drawdown is how far the balance fell below the initial deposit. Maximal drawdown is the largest peak-to-trough fall in account currency. Relative drawdown is the largest peak-to-trough fall as a percentage of that peak.
Is a low historical drawdown a guarantee of low future risk?
No. Drawdown is a historical measurement, and the worst drawdown of any strategy is, by definition, only the worst one observed so far. It is a useful description of the past, not a limit on the future.
Why does a 50% drawdown need a 100% gain to recover?
Because the gain is measured from the smaller, post-loss balance. Falling from 10,000 to 5,000 is −50%, but climbing from 5,000 back to 10,000 requires the account to double — +100%.
Related guides
What Is Risk of Ruin?
Why losing streaks compound, and how risk per trade turns the same edge into very different ruin odds.
How Position Sizing Works
The chain from risk budget to lot size — the formula, pip-value conversions, and why fixed lots distort risk.
Equity vs Balance in MetaTrader
Why equity dips below balance while positions are open, and why margin level is computed from equity.
Related free tools
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Sources & further reading
- MetaTrader 5 Help — Strategy Tester report and drawdown statistics — official definitions of the absolute, maximal and relative drawdown figures.
- MQL5 Documentation — Statistics calculated in the tester — the exact statistic identifiers behind the report values.
Want to analyze your own MetaTrader account data automatically?
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This article is for educational purposes only. It does not provide trading signals, investment advice, financial recommendations, broker recommendations or trade execution.