Drawdown
Drawdown is the fall from a peak in account value to the next low, shown as a percent. Maximum drawdown is the largest such fall in a period.
How Drawdown is calculated
Drawdown at any time = (current value / highest value so far) - 1. A fall from 10,000 to 8,000 is a 20 percent drawdown. The gain needed to recover is 1 / (1 - drawdown) - 1: 20 percent needs 25 percent, 50 percent needs 100 percent, and 80 percent needs 400 percent.
How it is read
Drawdown describes the worst stretch you had to sit through, and how long it took to recover. It is what makes a rule hard to follow in practice.
Common mistakes
- Quoting the maximum drawdown of a short test as if it were the worst possible. A longer sample usually finds a deeper one.
- Ignoring the time under water. A shallow drawdown can last years.
- Setting a position size without asking what a 30 percent drawdown would do to you.
What Tickfloor tested
Tickfloor has not published a backtest of a rule built only on Drawdown. It describes or manages something rather than giving a signal, so there is no strategy to score. It still shapes how any tested rule should be read.
Lessons that cover it
- Losing streaks and how accounts blow up
- Losing streaks are normal: how long can one get?
- What a funded account is, and how the firm gets paid
- The rules, with numbers: daily loss and maximum loss
- Why most people fail: the target pulls, the limits push
Related concepts
General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.