All TermsMetric

Drawdown

Drawdown measures how far your account equity has fallen from its previous peak, expressed as a percentage. The maximum drawdown over a backtest or live track record is the worst peak-to-trough loss.

The math of recovery

Drawdown is asymmetric — recovering from a 50% loss requires a 100% gain, not 50%. This is why every serious risk manager prioritises drawdown over raw return.

DrawdownRecovery needed
10%11.1%
20%25%
33%49%
50%100%
75%300%
90%900%

Tolerable levels

Most retail strategies should target a max drawdown under 20%. Above 30%, most traders panic and abandon the system — exactly when they shouldn't. Position sizing is the only true control.

In PineForge

Every backtest reports max drawdown and the equity curve. Filter out strategies with > 25% drawdown unless you have a specific reason to accept it.

Related Terms

Risk Management

Risk management is the discipline of sizing positions and placing stops so that no single trade — or string of losses — can ruin your account.

Sharpe Ratio

The Sharpe ratio measures excess return per unit of volatility — the most-cited risk-adjusted performance metric in finance.

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