Drawdown

Drawdown is the decline from a peak in your account equity down to a subsequent trough - usually expressed as a percentage. If your account hit ₹5,00,000 and then fell to ₹4,00,000 before recovering, you experienced a 20% drawdown. The single deepest drop in your history is called your maximum drawdown.

Drawdown is the number that actually decides whether a trader survives. Returns make the headlines; drawdown ends the careers. Every system has losing streaks. The question is whether you can sit through them without flipping the table.

Why drawdown beats returns as a system metric

Two systems both make 30% a year. System A has a 10% max drawdown. System B has a 40% max drawdown. Same return, very different lived experience. System A you can comfortably leverage 2× or 3× to amplify. System B you can’t - leverage would push the drawdown into account-busting territory.

Drawdown also has a psychological component returns don’t. Most traders abandon a profitable system during its largest drawdown, not during its largest losses on a single trade. Knowing your historical max drawdown beforeyou live through it is what lets you stay the course when it’s happening.

How to track it

For every trade, compute cumulative net P&L. The drawdown at any point is the gap between the current cumulative P&L and the highest cumulative P&L seen so far. Plotted over time you get an “underwater equity curve” - most traders find it more useful than the standard equity curve because it shows pain, not vanity.