What Is Drawdown? The Risk Metric That Matters Most
Drawdown measures peak-to-trough loss. Learn how it is calculated, why recovery maths is brutal, and how leverage multiplies a small drawdown into a large one.
Drawdown is the decline from an account's highest equity point to its lowest subsequent point, expressed as a percentage. It is the single most useful risk number in trading because it tells you what the strategy has actually put its investors through.
The recovery maths
| Drawdown | Gain needed to recover |
|---|---|
| 5% | 5.3% |
| 10% | 11.1% |
| 20% | 25% |
| 50% | 100% |
| 80% | 400% |
This asymmetry is why avoiding large drawdowns matters more than capturing large gains.
Drawdown and leverage
Maximum drawdown vs current drawdown
- Maximum drawdown — the worst decline ever recorded on the account
- Current drawdown — how far below the recent peak the account sits today
- Duration — how long the account stayed underwater, which is often harder to endure than the depth
How to use drawdown when sizing
Take the historical maximum, multiply it by your leverage factor, then assume the future will be worse than the past. If that number is more than you can calmly sit through, reduce your position size rather than hoping.
The amplified projection maths, including the downside case, is shown on Performance.
Frequently asked questions
It depends entirely on the leverage it was measured at and on your own tolerance. A low unleveraged drawdown becomes a large one once amplified.
Yes. Historical maximum drawdown is a record of what has happened, not a limit on what can happen.
The Sonic AI Research Desk documents how the XAU/USD strategy behaves in live markets, using the linked public MyFXBook account as its source for Sonic AI historical performance figures. Market data, broker terms and illustrative calculations are sourced and labelled separately.
Put the theory to work
Open an account from $10 and copy the same verified gold strategy these guides analyse — or talk it through first.
