Definition, as the journal computes it
The largest fall from a peak to a later trough on the closed-trade balance: the balance after each closed trade. It is not intraday drawdown. The journal doesn’t see open positions’ floating P&L, so a trade that went deep against you and closed at a small loss counts only the small loss, and an open trade’s realised partial exits don’t count until it closes.
The fall is measured within the range, starting from the opening balance as the first peak.
Deposits and withdrawals are not gains or falls. A withdrawal isn’t a loss and a deposit isn’t a recovery, so each cashflow moves the peak along with the balance:
- In money, a cashflow moves the peak by its amount. The gap between peak and balance is unchanged, so the money drawdown is exactly the fall in cumulative trading P&L.
- As a percentage, a cashflow moves the peak by the same proportion as the balance: the peak is multiplied by (balance after ÷ balance before). The percentage below the peak is unchanged. A fall of 10%, a withdrawal, then another fall of 10% is 19%, as it would be with no withdrawal.
From the journal's written definitions: Max drawdown
On this page
- 1What is maximum drawdown?
- 2How do you calculate max drawdown?
- 3Is this the same as intraday drawdown?
- 4How do deposits and withdrawals affect drawdown?
- 5Why can the money and percentage drawdowns differ?
- 6How much do you need to gain to recover from a drawdown?
- 7Why does the journal ask for a starting balance?
What is maximum drawdown?
Maximum drawdown is the largest fall from a peak to a later low in your account balance. The journal measures it on the balance after each closed trade, in money and as a percentage of the peak.
It answers one question: how far did the account fall from a high point before it recovered? It doesn’t say how long the recovery took, or whether it has happened yet.
How do you calculate max drawdown?
Track the highest balance so far after each closed trade, measure how far the balance is below that peak each time, and take the largest gap. As a percentage, divide that gap by the peak it fell from.
In the sample account (trades listed on the trading metrics page), the balance peaked at $5,240.00 after trade 4 and fell to $5,060.00 after trade 7. It never went above $5,240.00 again, and no later fall was deeper.
- Max drawdown$5,240.00 − $5,060.00= $180.00
- As a percentage of the peak$180.00 ÷ $5,240.00 is about 3.435% rounded to 3.4%
The range’s opening balance counts as the first peak, so a period that starts with a loss is in drawdown from its first trade.
Is this the same as intraday drawdown?
No. The journal doesn’t see open positions’ floating P&L, so a trade that went deep against you and closed at a small loss counts only the small loss.
Partial exits on a trade that’s still open don’t count until the whole trade closes. Brokers and prop firms often measure drawdown on equity, including open trades, so their figure can be larger than the journal’s. Check how yours defines it.
How do deposits and withdrawals affect drawdown?
They don’t count as gains or falls: a withdrawal isn’t a loss and a deposit isn’t a recovery. In money, each one moves the peak by its amount; as a percentage, it moves the peak by the same proportion as the balance.
Example: deposit $10,000.00, then a win takes the balance to $12,000.00, its peak. A loss of $1,200.00 takes it to $10,800.00, 10% down. You withdraw $5,400.00, leaving $5,400.00, and a loss of $540.00 takes it to $4,860.00.
- Peak in money, moved by the withdrawal$12,000.00 − $5,400.00= $6,600.00
- Max drawdown in money$6,600.00 − $4,860.00= $1,740.00
- Peak as a percentage, halved with the balance$12,000.00 × ($5,400.00 ÷ $10,800.00)= $6,000.00
- Max drawdown as a percentage($6,000.00 − $4,860.00) ÷ $6,000.00= 19%
$1,740.00 is exactly the two losses, and 19% is two 10% falls in a row, as it would be with no withdrawal. Measured on raw balances, the same account would show a $7,140.00 fall that the withdrawal made up.
Why can the money and percentage drawdowns differ?
They are two separate maximums and can come from different stretches of trading. A $500 fall on a $1,000 balance is 50%, while a $1,000 fall on a $10,000 balance is only 10%.
So the journal shows both, each with the peak and the low it came from. An account that grew a lot can have its largest money drawdown late and its largest percentage drawdown early.
How much do you need to gain to recover from a drawdown?
More than you lost, in percentage terms, because the gain is measured from the lower balance. Recovering from a 10% drawdown takes about 11.1%, from 20% it takes 25%, and from 50% it takes 100%.
Gain needed to recover
| Drawdown | Gain needed to get back |
|---|---|
| 5% | 5.3% |
| 10% | 11.1% |
| 20% | 25.0% |
| 30% | 42.9% |
| 50% | 100.0% |
The gain needed is drawdown ÷ (1 − drawdown). This is general arithmetic, not a figure the journal shows. It’s one reason position sizing matters more than any single trade.
Why does the journal ask for a starting balance?
Drawdown as a percentage needs a balance to measure against, and the journal takes it from your opening deposit. Without one, it still shows the drawdown in money and asks you to add the deposit to see the percentage.
Record deposits and withdrawals as they happen, too. Without them, the journal’s balance drifts away from your broker’s, and the percentage is measured against the wrong balance.