Maximum Drawdown — what it is and how to use it in trading
Definition
Maximum drawdown is a strategy's deepest drop in equity from a local high (a "peak") to the following low (a "trough") over the period under review, usually expressed as a percentage.
How it works in the builder
For example, a value of -30% means that at the worst point in the period the account was 30% below its previous all-time high. It's computed from the equity curve of the backtest or live trading, not from a single trade.
Typical use
A key metric for a strategy's financial and psychological tolerability: even a strategy that's profitable on average, with a -50% drawdown, needs the account to double just to get back to its prior peak — and can be emotionally unbearable to hold through.
Common pitfalls
The historical maximum drawdown is not a ceiling — a future drawdown can easily turn out deeper than anything seen in the backtest, especially in a non-stationary market.
This block is available in the strategy builder
137 no-code blocks — build an entry condition with this term and test it on history
Historical results do not guarantee future ones. The service is an informational and analytical tool, not an individual investment recommendation; trades are not executed.