Max drawdown

The formula

The largest drop in your equity curve from a peak, in currency and %.

How to read it

The worst run of cumulative losses. This is what blows a prop firm challenge.

It is the counterpart of return, and the two are read together. The ratio of return to maximum drawdown, called the recovery factor, says how many times you recovered your worst dip. Below 1, the strategy has not yet proved it can climb back what it takes down.

The classic mistake

Looking only at the percentage. A 10% drawdown on a prop firm account with an 8% limit is not open to discussion: the account is already gone. The firm's rule beats any statistical reading, and it is measured by THEIR convention, static or trailing.