What is Drawdown?
Drawdown at any moment is the gap between your latest equity peak and today’s equity. Max drawdown is the largest such gap over a period.
Formula
Drawdown = (Current Value - Peak Value) / Peak Value × 100
Indian market context (NSE)
Reference levels: Nifty 50 at 24,300, Reliance Industries at ₹1,300, Bank Nifty futures at 55,000 (lot size 30). Examples below show how Drawdown shows up on Indian index, equity, and futures books — update to live quotes in your journal.
Nifty 50 perspective
Apply Drawdown to your Nifty 50 sleeve (spot near 24,300): track the metric on closed index F&O or ETF trades over at least 30 sessions before changing rules. NSE costs and slippage on fast opens often widen the gap between spreadsheet drawdown and bank P&L.
Reliance Industries perspective
On Reliance (₹1,300) delivery or intraday trades, calculate drawdown with contract-note costs included. Single-name results can look strong on drawdown while your Nifty-correlated book tells the opposite — tag “RELIANCE” separately in TradeLyser.
Bank Nifty futures perspective
Bank Nifty futures near 55,000 (lot 30) amplify drawdown swings versus cash — one volatile session can move the metric more than a week of Nifty trades. Log margin mode (MIS/NRML) with each entry for honest review.
| Metric | Question it answers |
|---|---|
| Current drawdown | How deep am I right now vs my peak? |
| Max drawdown | What was the worst hole in this window? |
| Duration | How long have I stayed below peak? |
How to validate
- Minimum sample: 30 closed trades on one strategy tag before trusting Drawdown.
- Check for one outlier week inflating Drawdown — export largest winners and losers.
- Recompute Drawdown after including brokerage, STT, and slippage on F&O tags.
- Compare Drawdown on the same date range as profit factor and max drawdown.
How to track in TradeLyser
- Open Strategy Board or analytics → filter by strategy tag and review period.
- Locate the widget or column reporting Drawdown (or export trades to compute manually).
- Store snapshot values in weekly review: Drawdown, profit factor, drawdown, trade count.
- If Drawdown is custom, add a spreadsheet column fed from TradeLyser CSV export.
Best practices
- Publish Drawdown per strategy, not only at account level.
- Use the same calculation window (weekly vs monthly) year-round.
- Pair Drawdown with sample size in every review slide or note.
- Reconcile Drawdown with broker statements before tax filing.
Common pitfalls
- Changing rules after fewer than 20 trades because Drawdown moved slightly.
- Mixing intraday and positional tags when computing Drawdown.
- Ignoring costs so Drawdown looks better than banked P&L.
- Letting one outlier trade dominate the Drawdown reading.
How to use this in TradeLyser
Overlay drawdown on the equity curve weekly. If drawdown duration exceeds your playbook threshold, reduce size or paper-trade until process review is complete.
Reference guide
| Context | Value | Reading |
|---|---|---|
| Live monitoring | Dashboard + weekly review | Ignoring gradual 20%+ drift |
Related terms
An equity curve is a time series of account or strategy value. Upward slope with controlled pullbacks suggests durable edge; vertical spikes warn of concentration.
Maximum drawdown records the worst fall from a prior equity high to the subsequent low. It describes pain and capital required to stay in the game — not just the final P&L.
Recovery factor shows how many rupees of net profit you earned per rupee of max drawdown in the window. Higher is better if the sample is honest.
By trader level
Start here — essential concepts
New to trading or journaling? These are the core terms you need to understand before anything else.
FAQ
What is drawdown in trading?
Drawdown is the current percentage decline from your account's most recent high point (peak). If your account reached $50,000 and is now at $45,000, you're in a 10% drawdown. Drawdown measures how far underwater you are from your best performance.
How do you calculate drawdown?
Drawdown = (Current Value - Peak Value) / Peak Value × 100. For example, if your peak was $100,000 and current value is $85,000, your drawdown is ($85,000 - $100,000) / $100,000 × 100 = -15%.
What is an acceptable drawdown?
For most active traders, drawdowns under 10-15% are considered normal and acceptable. Drawdowns between 15-25% require review and possible position size reduction. Drawdowns exceeding 25-30% signal significant strategy issues that need immediate attention.
How do I recover from drawdown?
Recovery requires earning back the losses with remaining capital. A 10% drawdown needs 11.1% gain to recover. Focus on reducing position sizes during drawdown, sticking to your best setups, and avoiding the temptation to over-trade or increase risk to recover faster.
What is the difference between drawdown and loss?
A loss is a single trade outcome. Drawdown is the cumulative decline from peak equity—it can include multiple losses. You might have 3 small winning trades but still be in drawdown if those wins haven't recovered your previous peak.
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