Performance Metric
Drawdown — Definition & Example
The peak-to-trough decline in account equity, expressed as a percentage of the previous peak.
Drawdown measures how far an account has fallen from its highest equity point before recovering. It is the most direct measure of risk a trader experiences in real time. A 20% drawdown means the account is down 20% from its previous high — and importantly, recovering from a 20% drawdown requires a 25% gain on the smaller capital base. Deep drawdowns also test psychological discipline; most blowups happen during drawdown phases when traders abandon their plan to "make it back."
Formula
Drawdown = (Peak Equity − Current Equity) / Peak Equity × 100%Example
Account peaks at ₹1,00,000 then drops to ₹80,000. The drawdown is (1,00,000 − 80,000) / 1,00,000 = 20%. To recover to the previous peak, the account needs to gain 25% from the ₹80,000 level (not 20%).
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