Drawdown
The fall in equity from a local peak to the following trough. A key metric for strategy survival — plan your tolerance before a losing streak.
Definition
Drawdown is the decline in account equity from a local peak to the next trough — it measures how deeply the account “dived” during a losing streak or an adverse run. It is a survival metric: even a strategy with positive expectancy can be unacceptable if its drawdown is too deep.
Example
A demo account peaks at 50,000 PLN. After a run of losses equity falls to 42,500 PLN. The drawdown is 7,500 PLN, or 15% from the peak. Only when equity makes a new high is that particular drawdown “closed” in the history of the equity curve.
Anti-example / common mistake
A drawdown is not the loss on a single trade — it is the decline from the peak of the whole equity curve, not the distance to your stop-loss. Beginners also confuse the maximum historical drawdown with the “worst possible” one ahead, and play it down while using high leverage.