Drawdown
Drawdown measures how far the account fell below its own previous high; Max DD is the deepest of those falls, and the best single answer to "how painful would this have been to hold?".
In April 2021, Von Lohengramm T7 - BTCUSD's account stood at about 132,000, a new high. Three months later, in mid-July, it was at about 75,400. That's a fall of 42.9%, and it's the number you see as Max DD on its card. Someone following the strategy with real money would have watched almost half of their account's value disappear in three months, after years of gains.
It recovered: by the autumn of 2021 the account was above its old high again. But many people don't hold through a fall like that, and a strategy you abandon at the bottom never gets the chance to recover for you. That's why Max DD deserves as much attention as CAGR.
What a drawdown is
Picture the account line. Each time it makes a new high, that high becomes the mark. Whenever the line is below the mark, the account is in a drawdown, and the drawdown is how far below, in percent. Max DD is the deepest drawdown anywhere in the window you're looking at.
Drawdowns are shown without a minus sign. 42.9% means 42.9% below the previous high.
On every bar: drawdown = value ÷ highest value so far − 1. Max DD = the most negative drawdown in the window, shown as a positive percentage. On a strategy page it's labelled Equity max DD.
Why depth matters so much
Losses and recoveries aren't symmetric. The deeper the fall, the bigger the gain needed just to get back to where you were:
| Fall | Gain needed to recover |
|---|---|
| −10% | +11% |
| −25% | +33% |
| −43% | +75% |
| −50% | +100% |
| −75% | +300% |
The second drawdown on the strategy page
Under Performance, a strategy page shows two drawdowns next to each other. For Von Lohengramm T7 they're far apart:
| Label | What it measures | Von Lohengramm T7 |
|---|---|---|
| Equity max DD | Worst fall of the whole account below its previous high | 42.9% |
| Trade max DD | Worst loss inside a single trade, measured from that trade's entry, while it was open | 15.5% |
How can the account fall 42.9% when no trade lost more than 15.5%? Because a trade can give back a big gain without ever going below its entry price. Von Lohengramm T7 bought BTC in April 2020 and held until May 2021. BTC went up more than fivefold, then turned down hard in spring 2021. The strategy was still in when the fall began and only got out in mid-May. By then the account had given back about a third of its peak value, yet the trade still closed with a gain of almost 470%. The next trade, opened in June, then lost some more before it turned. Together that's the 42.9%.
The open-trade number answers "how far did a single bet go against me?" The equity number answers "how far below my best moment did my account get?". The equity number is the one that matches the feeling of watching your balance, so it's the one shown as Max DD on cards and portfolios.
Usually the equity number is the bigger one. The open-trade number can come out higher in one case: it uses the lowest price reached inside each bar, while the account line is valued at each bar's close. A sharp dip in the middle of a 5-day bar that recovers before the close counts for the open-trade drawdown but never shows on the account line.
How to read it
Across all published strategies, the middle half have a Max DD between about 40% and 62%, and a Trade max DD between about 15% and 32%. These are long-only strategies on volatile markets; even with an exit rule, a 5-day bar can only react once every five days, and a lot can happen in five days.
The honest test is personal. Imagine your real savings down by that percentage, and staying down for months, while news everywhere tells you it's going lower. If you'd have sold, the strategy is too rough for you, however good its return. Portfolios that mix assets usually do better here: Four Pillars Index [GPS] has a Max DD of 29.8%, lower than nearly every single strategy inside it, because its parts don't all fall at the same time.
Flat stretches inside a drawdown
These strategies often sit in cash for months. If a strategy sells partway down a fall, its account line goes flat below the old high and stays there until a later trade climbs back above it. On the chart that looks like a long drawdown, but nothing is being lost during the flat part. A deep, long drawdown on a mostly Flat strategy often means "got out low, then waited", not "kept losing".
When you see "–"
Max DD needs at least two bars in the window; Trade max DD needs at least one trade. "–" means "can't be worked out", never zero.
Open Von Lohengramm T7 - BTCUSD, set the range to 2021 only, and watch the Equity chart: you'll see the peak in April, the exit in May and the low in July.