How to measure maximum drawdown in your trading account

01

How to calculate maximum drawdown

Start with a dated equity series. Your trading balance and equity measure different things. Equity includes the current result of open positions. That distinction matters when losses remain unrealised.

Maximum drawdown = largest value of [(running equity peak − current equity) ÷ running equity peak] × 100.

1. Choose the measurement period and observation frequency.
2. Read the equity observations in chronological order.
3. Track the highest equity recorded up to each observation.
4. Calculate each decline against that running peak.
5. Select the largest percentage decline and record its peak and trough dates.

The order matters. An account low that occurred before a later high cannot be paired with that high. Drawdown measures a decline after a peak, not the distance between any two values.

For a 2026 review, state whether the calculation begins at the review window or carries forward an earlier high-water mark. Those conventions answer different questions. A window-only calculation measures declines inside that window.

02

Why the measurement basis matters

A closed-trade report does not show every fluctuation in account value. An open position can move against you before it closes. A balance-only calculation excludes that interim movement.

Use equity drawdown when your question concerns the account decline experienced while positions were open. Keep balance drawdown separately if you also want to examine booked results. Do not compare the two as interchangeable measures.

Also separate percentage drawdown from monetary drawdown. Percentage drawdown divides the decline by its preceding peak. Monetary drawdown records the account-currency amount. Their largest declines need not occur during the same episode.

03

Build a repeatable spreadsheet calculation

Create columns for timestamp, current equity, running peak and drawdown percentage. Use a consistent account currency. Sort the observations from earliest to latest before applying formulas.

• Current equity: enter the observed account equity at each timestamp.
• Running peak: take the highest equity from the first observation through the current row.
• Drawdown percentage: divide the difference between running peak and current equity by running peak.
• Maximum drawdown: select the largest value in the drawdown column.

Format the drawdown ratio as a percentage. Do not multiply by 100 and then apply percentage formatting again. That would scale the displayed result twice.

Each equity observation is compared with the highest equity recorded before or at that observation.

Check the row containing the largest decline. Its running peak must correspond to an actual earlier observation. Keep the timestamp of that peak alongside the trough timestamp so the result remains traceable.

At a new equity high, drawdown is 0%. The standard percentage formula assumes a positive running peak. A zero denominator makes it undefined. Negative account values require explicit treatment rather than a silently accepted spreadsheet result.

04

Why maximum drawdown varies between reports

Different calculations can describe different parts of the same trading history. Before comparing your 2026 reports, check the measurement rules. A shared label does not establish a shared method.

• Observation frequency. End-of-day snapshots exclude movements between snapshots. More frequent observations can capture peaks and troughs absent from the daily series.
• Measurement window. Changing the start date changes which preceding peaks are included. Changing the end date changes which troughs are available.
• Equity or balance. Including unrealised results changes the account-value path. Closed-trade records alone cannot reconstruct every open-position fluctuation.
• External cash flows. Deposits increase raw equity without representing trading gains. Withdrawals reduce raw equity without representing trading losses.
• Costs and account entries. Compare series with consistent treatment of commissions, financing and other booked adjustments. Do not deduct costs twice.
• Incomplete observations. Missing timestamps can remove the actual peak or trough. A calculation remains limited to the observations it contains.

Treat missing data in a trading review as a measurement issue. Do not label a daily-snapshot result as an intraday maximum. Record the source, frequency and coverage beside the figure.

05

How do deposits and withdrawals affect drawdown?

Deposits and withdrawals change account equity independently of trading performance. A deposit can conceal part of a trading decline in the raw equity curve. A withdrawal can create an apparent decline without a trading loss.

For performance measurement, use a consistently cash-flow-adjusted return series. One approach is to calculate returns between external cash flows and link those returns into a performance index. Then calculate drawdown on that index.

Cash-flow timing matters. A return calculation must distinguish money present during a trading interval from money added at its end. Simply subtracting total deposits from every historical equity observation does not preserve that timing.

Keep the original account record alongside the adjusted series. For a 2026 performance review, label the adjusted result clearly. Raw equity remains useful for understanding the actual funds in the account. It answers a different question.

06

What does maximum drawdown leave out?

Maximum drawdown describes the deepest observed decline. It does not describe how often losses occurred or how long recovery took. Record the peak date, trough date and recovery date separately.

Recovery occurs when the same measurement series regains its preceding peak. An unrecovered drawdown still counts. Do not wait for recovery before including the decline in your report.

A 50% decline requires a 100% gain from the remaining value to regain the peak. This is arithmetic, not a return forecast. The recovery percentage uses the smaller post-loss value as its denominator.

A historical maximum is not a future loss limit. It also does not identify the cause of the decline. Examine position sizes, overlapping exposures and execution records before assigning an explanation.

Compare like with like in your 2026 review. Keep the observation frequency, cash-flow treatment and calculation basis consistent. A lower reported drawdown alone does not establish a stronger trading process.

Measure the decline. Preserve the dates. State the method.