Drawdown explained with a simple example
Drawdown is the drop in your account from its highest point to the lowest point that follows. It is the single most important number for judging whether a strategy — or an EA — fits you.
A simple example
You start with $10,000. The account grows to $12,000, then a losing run takes it to $9,600 before it recovers.
Peak: $12,000
Lowest point after peak: $9,600
Drawdown: (12,000 − 9,600) ÷ 12,000 = 20%
Notice that the drawdown is measured from the peak, not from your deposit. Even though you were still close to your starting balance, you lived through a 20% fall.
The recovery maths
Losses and gains are not symmetrical. The deeper the drawdown, the harder the climb back:
| Drawdown | Gain needed to recover |
|---|---|
| 10% | 11.1% |
| 20% | 25% |
| 30% | 42.9% |
| 50% | 100% |
This is why keeping drawdowns shallow matters more than chasing a high win rate.
How to keep it under control
- Risk a small, fixed percentage per trade.
- Set a daily or weekly loss limit and respect it.
- Look at the maximum drawdown in any backtest before you look at profit.
- Ask yourself honestly: could I sit through that drop without switching the EA off?
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Educational content, not investment advice. Trading carries a high level of risk.