Drawdown calculator
It is a tool for measuring the fluctuations between the highest point of the trading account value or the balance of the portfolio during a certain period. In simple words, the Drowdown calculator displays the percentage of the account value drop at the time of loss. Also, in the forex market, to determine the risk of a strategy, it is necessary to have a proper understanding of drawdown. It is suggested to use this calculator along with other profitability criteria.
| Periods | Starting Balance | Ending Balance | Total Loss | Total Loss (%) |
|---|
How to use the calculator?
Simply enter the starting balance, the number of consecutive losses and the loss per trade (in percent) to calculate the expected drawdown.What is Drawdown?
Drawdown is one of the key factors when assessing a trading system's risk. You may often hear the phrase "there is no gain without risk" — however how much risk is too much? With a drawdown value you can quickly see how much risk the investment has taken. Drawdown is the largest drop from peak (highest point) to valley (lowest point), in either percentage or money. For example, a 50% drawdown means the account lost 50% of its value at some point (realized or unrealized).What is the formula for Drawdown?
P = Peak balanceL = Lowest balance (valley)How to calculate Drawdown?
Say your account reaches $100 and then falls to $72. Drawdown is (100 − 72) / 100 = 28%.Each time the account makes a new peak, you look for the next low to measure drawdown from that peak. If the new drawdown is larger than before, you have a new maximum drawdown.Why is Drawdown important?
When you compare two trading systems, higher return does not always mean a better strategy — it may simply mean more risk. To compare risk-adjusted performance, divide return by drawdown; the higher number took less risk for the same reward.- System (a): 50% gain and 10% drawdown → risk ratio 5
- System (b): 70% gain and 25% drawdown → risk ratio 2.8
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