Core terms
Drawdown
The decline of an account or strategy from its highest value (the peak) to a later low, usually stated as a percentage of the peak.
Drawdown is measured from the running peak, not from the starting balance, so an account that rose and then fell can be in drawdown while still above its starting value. Maximum drawdown is the deepest such decline over a stated period. For commodity pools and trading advisors, CFTC Rule 4.10 defines "draw-down" as losses over a specified period and "worst peak-to-valley draw-down" on month-end net asset value (as of 2026-10-05; 17 CFR 4.10).
Drawdown recovery
Returning to the peak takes a larger percentage gain than the percentage lost: after a drawdown d, the gain needed is 1 ÷ (1 − d) − 1. A 30% drawdown needs 1 ÷ 0.70 − 1 ≈ 42.9%; a 50% drawdown needs 100% (Illustrative). A deep drawdown costs twice: once in the loss, and again in the number of trades needed to climb back at the same edge.
What traders should verify
Track drawdown from the running peak of your own equity curve, in percent and in R, and set in advance the depth at which you stop and review. Keep practice and simulated results separate from real broker-synced P&L.
Do not conflate
Outside the CFTC disclosure rule, day traders have no standard basis or period: intraday, end-of-day and month-end figures for the same account differ. A maximum drawdown from a short history understates what a process can produce, because a short sample rarely contains its longest losing streak.
Primary source
Primary sourceCFTC Rule 4.10(k) and (l), 17 CFR 4.10