Drawdown
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Drawdown is the fall from an account's peak value to its subsequent low, expressed in money or as a percentage. It measures the pain of a losing run rather than the final result. A 20% drawdown needs a 25% gain to recover, and the deeper it goes the harder recovery becomes, which is why controlling drawdown matters more than chasing returns.
Full explanation
Maximum drawdown records the worst peak-to-trough decline in a track record; current drawdown records how far below the peak you are today. Because recovery is non-linear, small consistent risk per trade is far more valuable than occasional large wins. Practical controls include a fixed percentage risk per position, a daily and weekly loss cap, and a rule that reduces size after a defined drawdown threshold until performance stabilises.
Why traders watch it
Drawdown is the number that ends trading careers. Position sizing, daily loss limits and time away from the screen all exist to keep it survivable.
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