Maximum Drawdown
Maximum drawdown is the largest peak-to-trough percentage decline in an account's equity over a period, measuring the worst loss an investor would have endured.
Maximum drawdown is the largest peak-to-trough fall in equity — the worst pain a strategy inflicted before recovering. Recovery is asymmetric: a 50% drawdown needs a 100% gain (Recovery = DD ÷ (1 − DD)), which is why deep drawdowns are disproportionately dangerous and why leverage must be set against the modelled worst case, not the backtest's single lucky path. In a live system, drawdown thresholds drive de-risking, circuit breakers and the kill switch. The full concept — formula, recovery table and examples — is maintained at its canonical home on RiskManagementGyan, the network's risk authority.
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Maximum drawdown
Canonical explainer on RiskManagementGyan.
Risk of ruin
Canonical explainer on RiskManagementGyan.
Risk per trade
Canonical explainer on RiskManagementGyan.
Related on AlgoTradeGyan: Risk of Ruin · Risk per Trade · Circuit Breakers · Portfolio Heat · Kill Switch Design
Published 10 July 2026 · Updated 17 July 2026. This page is a summary; the canonical, maintained treatment of Maximum drawdown lives on RiskManagementGyan. Educational content only — not investment advice.