PipWardenWhat is drawdown in trading?
Definition Drawdown is the fall in an account's balance or equity from a peak to a later low, measured in money or as a percentage of that peak.
Drawdown in trading is how far an account has fallen from its highest point: the drop from a peak in balance or equity to a later low, in money or as a percentage of the peak. An account that grows from $10,000 to $12,000 and then falls to $9,000 is in a $3,000 drawdown, 25% of the peak.
How drawdown is measured
Three choices decide the number:
- Balance or equity. Balance counts closed trades only. Equity adds the floating profit or loss of open trades, so an equity drawdown is usually deeper.
- Money or percent. $3,000 and 25% describe the same drop in the example above.
- Measured from where. From the latest peak, from the starting balance, or from a floor that moves up with new highs, the trailing drawdown some prop firms use.
A drawdown needs a larger gain to undo it: d ÷ (1 − d). Getting from $9,000 back to $12,000 takes 33.3%. The drawdown calculator does this for any figure, and counts how many losses in a row reach a given limit.
Drawdown in the MT5 Strategy Tester report
The report from a backtest in the MT5 Strategy Tester lists three drawdown figures, each for balance and for equity (MT5 help):
| Figure | What it measures |
|---|---|
| Absolute | How far the account fell below the initial deposit, at its lowest point |
| Maximal | The largest fall from a local high to the next low, in the deposit currency |
| Relative | The largest fall from a local high to the next low, in percent |
The report prints the other unit in brackets, so this test reads Maximal $3,000 (15%) and Relative 20% ($2,000). The same percentage drop is more money on a bigger account, which is why the two figures can point to different parts of a test. A fair comparison of two tests puts Relative next to Relative and Maximal next to Maximal.
A common mistake
Reading a backtest’s maximum drawdown as the worst case. It is the worst drop in one sample of history. A longer run of losses, a different market or real-world slippage can produce a deeper one, and the odds of a long losing streak grow with the number of trades. Risk of ruin looks at the far end of that: the chance of losing so much that trading cannot continue.
The other mistake is comparing figures measured differently. A prop firm that counts equity against the starting balance and a dashboard that counts closed trades from the latest peak can report different numbers for the same account on the same day. See prop firm daily drawdown for how firms measure it.
Drawdown and PipWarden
PipWarden reports drawdown in two places. The dashboard shows the maximum realized drawdown, measured on closed trades, so floating losses of open positions are not in it. The backtest page shows the maximum drawdown and the longest losing streak for your settings, on price history from your broker or from a CSV file you import.
PipWarden has no overall drawdown stop of its own. Its daily loss limit stops new trades for the rest of the UTC day once the day’s loss reaches it, 5% by default, but a limit on the account’s total fall, such as a prop firm’s maximum loss, is yours to track. Why most forex traders lose money covers the recovery maths and how often long losing streaks happen.
Frequently asked questions
What is the difference between balance and equity drawdown?
How much gain does it take to recover a drawdown?
Educational content, not financial advice. Forex and CFDs are traded on margin and are high risk: you can lose money, and more than your deposit with some brokers. Examples use made-up numbers and show no real results. Read the risk disclosure.