What does the term drawdown mean in trading?

General
1

Maximum risk

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2

Investopedia’s explained it beautifully here: http://www.investopedia.com/terms/d/drawdown.asp

I think Google isn’t working on your system.

3

suppose you have trading capital of rs. 10000. you lose 2000. now your capital is 8000 so drawdown is 20% after that you made a profit of 4000 now you have 12000 (8000+4000). after that you made a loss of 3000. now your capital is 12000-3000 i.e 9000. and your drawdown is 25% (not 10% calculated on your initial capital)

so drawdown is calculated on the highest point you achived.

hope you understand.

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4

Thank you for your response. Was looking for a simpler answer :slight_smile:

5

Let’s say you have a Rs. 100,000 and you lose Rs. 50,000. What percentage of your account have you lost?
The answer is 50%.
Simple enough.
This is what traders call a drawdown.
A drawdown is the reduction of one’s capital after a series of losing trades. This is normally calculated by getting the difference between a relative peak in capital minus a relative trough. Traders normally note this down as a percentage of their trading account.