Max Drawdown

Max drawdown (MDD) is the largest peak-to-trough drop your account equity has ever experienced. It's the single worst losing stretch in your history, measured from a high to the lowest point before a new high.

Ordinary drawdown tracks your current distance below the peak. Max drawdown is the all-time record, the deepest hole the strategy has ever dug.

Max Drawdown % = (Trough Equity − Peak Equity) ÷ Peak Equity × 100

Scan your full equity curve, find every peak-to-trough decline, and keep the biggest. It's always reported as the worst single drop, not the sum of several: one brutal stretch defines it.

Example

Over a year your crypto account peaks at $50,000, falls to $32,500 during a bad run, then recovers and climbs higher. That one decline of (32,500 − 50,000) ÷ 50,000 × 100 = −35% is your max drawdown, even if later dips were shallower. Recovering from −35% takes roughly +54%.

The honest answer

Max drawdown answers "how bad has it actually gotten?" It tells you whether you could have stomached a strategy through its worst patch. Two systems with identical returns are not equal if one's max drawdown is 15% and the other's is 50%. It feeds the Sharpe ratio discussion of risk-adjusted return and sets the position sizing that keeps you in the game. The full guide on how drawdown works, recovery math included, covers the mechanics in depth.

Max Drawdown

Example

The honest answer

Related Terms

TMM tracks your max drawdown automatically across every exchange.