What is Max Drawdown?
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.
Formula
Max drawdown % = (Peak equity − Trough equity) ÷ Peak equity × 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 Max Drawdown shows up on Indian index, equity, and futures books — update to live quotes in your journal.
Nifty 50 perspective
Nifty sleeve peaks at ₹12L, trough at ₹9.6L → 20% max drawdown. On Indian calendars, Diwali and budget weeks often cluster drawdown periods — tag events in review.
Reliance Industries perspective
Reliance-heavy book drawdown from ₹8L to ₹6.4L while index only pulls back 8% signals single-stock risk — diversify or cut size after 15% equity sleeve drawdown.
Bank Nifty futures perspective
Bank Nifty futures account peak ₹5L to ₹3.75L is 25% MDD; prop-style 10% total drawdown rules would have forced pause earlier — write limits before live size.
Drawdown depth and recovery
A −20% drawdown needs a +25% gain to recover. Deeper holes require exponentially larger rebounds — reason to cap risk before psychology forces errors.
| Drawdown | Gain required to recover |
|---|---|
| −10% | +11.1% |
| −20% | +25% |
| −30% | +42.9% |
| −50% | +100% |
How to validate
- Minimum sample: 30 closed trades on one strategy tag before trusting Max Drawdown.
- Check for one outlier week inflating Max Drawdown — export largest winners and losers.
- Recompute Max Drawdown after including brokerage, STT, and slippage on F&O tags.
- Compare Max 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 Max Drawdown (or export trades to compute manually).
- Store snapshot values in weekly review: Max Drawdown, profit factor, drawdown, trade count.
- If Max Drawdown is custom, add a spreadsheet column fed from TradeLyser CSV export.
Best practices
- Publish Max Drawdown per strategy, not only at account level.
- Use the same calculation window (weekly vs monthly) year-round.
- Pair Max Drawdown with sample size in every review slide or note.
- Document formula used so mentors interpret the same number.
Common pitfalls
- Changing rules after fewer than 20 trades because Max Drawdown moved slightly.
- Mixing intraday and positional tags when computing Max Drawdown.
- Ignoring costs so Max Drawdown looks better than banked P&L.
- Letting one outlier trade dominate the Max Drawdown reading.
How to use this in TradeLyser
Track max drawdown on the equity-curve widget per strategy tag. When current drawdown approaches your written limit, switch to sim-only review for two sessions before re-sizing live.
Reference guide
| Context | Value | Reading |
|---|---|---|
| Live risk rule | Pause or halve size at plan limit | Doubling size to “recover” inside drawdown |
Related terms
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.
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.
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.
Risk per trade is the planned loss at your stop — not the notional value of the position. A ₹10 lakh notional trade might risk only ₹3,000.
By trader level
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FAQ
Is max drawdown peak-to-trough on equity curve?
Yes — largest drop from a high to a subsequent low on closed-trade equity.
What max drawdown is tolerable for prop-style rules?
Many retail plans cap around 10–20% of peak equity; define yours in the trading plan.
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