Maximum drawdown (MDD) measures the largest peak-to-trough decline in account equity over a period. It answers a practical question: how bad did things get before recovery?
Why drawdown matters
Traders often focus on returns, but drawdown explains survivability. A strategy with high ROI and a 60% drawdown may be unusable if you cannot tolerate that loss psychologically or financially.
Key reasons to track drawdown:
- Risk tolerance — Compare MDD against the capital you are willing to lose.
- Strategy comparison — Two strategies with similar ROI can have very different risk profiles.
- Position sizing — Large drawdowns often signal leverage or concentration issues.
How max drawdown is calculated
- Track running account equity over time.
- Record each new peak (highest equity so far).
- Measure the percentage drop from each peak to the subsequent lowest point.
- Maximum drawdown is the largest of those drops.
Example: equity rises from $10,000 to $12,000 (peak), then falls to $9,000 (trough). Drawdown = (12,000 − 9,000) / 12,000 = 25%.
What is a “good” max drawdown?
There is no universal threshold—it depends on asset class, leverage, and your goals. As a starting point:
| Profile | Typical MDD range |
|---|---|
| Conservative | Under 10–15% |
| Moderate | 15–25% |
| Aggressive | 25%+ |
Always evaluate drawdown together with return metrics like ROI and win rate.
Using drawdown on dogabot
When reviewing automations or backtests on dogabot, check max drawdown alongside total PnL and ROI. A backtest with strong returns but extreme drawdown may not match your risk budget.
See our guide to reading backtest results for a walkthrough of all key metrics.