Glossary

Drawdown

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If an account grows to $12,000 and then falls to $9,000 before recovering, it experienced a $3,000 (25%) drawdown. Maximum drawdown is the worst such decline over a period, and it is the single most honest statistic in a track record.

Drawdown math is asymmetric: a 50% loss needs a 100% gain to recover. That asymmetry is why position sizing exists — the first job of risk management is keeping drawdowns in the range where recovery is arithmetically realistic and psychologically survivable.

Covered in depth in Lesson 08: Drawdown: die Asymmetrie, die jeder Händler unterschätzt.

Related terms

• Position sizing — Deciding how much to risk on each trade — the discipline that determines whether losing streaks are survivable.
• Risk per trade — The fraction of account equity a single trade can lose if its stop loss is hit.
• Equity curve — The plot of account value over time — including open positions — that shows a strategy's character at a glance.