Encyclopedia · risk · metrics
Maximum drawdown
The deepest peak-to-trough decline of the equity curve — the number that actually removes traders from the game.
Maximum drawdown is the largest percentage fall from a running equity peak to the subsequent trough. It is the risk number with the most behavioural teeth: accounts are abandoned, funding is withdrawn and prop accounts are breached on drawdown, not on volatility.
Two caveats keep it honest. It is a single realized path statistic — the same strategy re-run in a Monte Carlo fan shows a whole distribution of maximum drawdowns, usually deeper than the one history happened to print. And it grows with sample length: a 10-year backtest will almost always contain a deeper drawdown than a 2-year one, so comparing max drawdowns across different lengths is comparing apples to time.
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