Trading glossary
Drawdown
Drawdown is the decline in your account equity from a peak to a subsequent trough, usually expressed as a percentage. Maximum drawdown measures the worst peak-to-trough loss over a period, and it matters because it defines how much pain a strategy can inflict before recovering. Prop firms enforce strict drawdown limits on funded accounts, so funded traders must track drawdown continuously. In a journal such as Traders Vault, drawdown is calculated automatically from your trade history and displayed alongside your profit target, so you can see at a glance whether you are trading inside your firm's rules.
What is Drawdown in trading?
Drawdown is the decline in your account equity from a peak to a subsequent trough, usually expressed as a percentage. Maximum drawdown measures the worst peak-to-trough loss over a period, and it matters because it defines how much pain a strategy can inflict before recovering. Prop firms enforce strict drawdown limits on funded accounts, so funded traders must track drawdown continuously. In a journal such as Traders Vault, drawdown is calculated automatically from your trade history and displayed alongside your profit target, so you can see at a glance whether you are trading inside your firm's rules.