Two strategy providers can both show a 30% historical gain while giving followers radically different experiences. One may have progressed steadily; another may have lost most of its balance before recovering. Maximum drawdown exposes part of that difference.
Measure the decline from a prior peak
Drawdown is measured from an earlier high in account equity to a subsequent low. A portfolio rising from $10,000 to $12,000 and then falling to $9,000 has a 25% peak-to-trough drawdown: the loss is $3,000 relative to the $12,000 peak, not 10% relative to the original deposit.
Check whether a dashboard calculates drawdown on balance (closed trades only) or equity including floating losses. Strategies that hold losing positions can look deceptively smooth if only closed balances are displayed.
Recovery requires disproportionately large gains
After a 20% loss, a strategy needs a 25% gain on the remaining capital to recover. After a 50% loss, it needs 100%. These are mathematical identities, not forecasts. An apparently exceptional historical recovery does not establish that future recoveries are probable.
Drawdown has important blind spots
A reported maximum drawdown is only the worst decline in the observed history. Short records, changes in leverage, omitted open exposure and different market regimes make comparisons less reliable. Also check concentration: three different strategy names may all be net long gold or the same dollar pair.
- Look at equity drawdown, not just closed-trade balance.
- Compare record length and the most volatile period experienced.
- Check leverage and exposure by instrument.
- Evaluate how much loss the copier could tolerate personally.
Drawdown & recovery calculator
Change assumptions yourself. This free calculator uses transparent arithmetic; it does not predict a strategy’s future results.
Open interactive calculator ↗