The largest peak to trough drop in an equity curve, the worst losing stretch a strategy has handed you.
Maximum drawdown is the biggest drop from a peak to the following trough in your equity curve. It is the one number that tells you how bad the worst stretch got, measured in R, percent, or dollars. If your account ran to +120R and then sank to +75R before recovering, your max drawdown was 45R. It is the number that decides whether you can actually live with a strategy, because the edge only pays if you are still in the seat when it comes back.
Find the highest point the equity curve reached, then the lowest point that comes after it before a new high. The gap between them is your max drawdown.
Depth is only half the story. A 30R drawdown that recovers in 40 trades is a different animal from a 30R drawdown that grinds sideways for 300 trades, and the second one is the account killer, because it is the one you quit during. Quantprove tracks both the depth and how long you spent underwater.
Because the backtest never felt fear. Live, you meet slippage, missed fills, and the very human urge to switch the strategy off two trades before the bottom.
A clean backtest also hides the drawdown you have not seen yet. The worst loss in your sample is almost never the worst loss possible, it is just the worst that happened to fit inside your data window. Plan for a drawdown deeper than your backtest ever printed, because over a long enough run you will get one. The is my drawdown normal guide digs into this.
It depends on your edge and your risk per trade, not on a magic percent. A system risking 1% per trade shows a very different drawdown from one risking 3%, even on the exact same trades.
As a feel, many retail systems run a max drawdown somewhere between 2 and 4 times their average annual return in R. If your worst drawdown is deeper than a whole year of gains, the strategy is asking you to suffer more than it pays. Size down or walk. The risk per trade guide covers how to set that dial.
Quantprove measures your max drawdown depth, how long it lasts, and how long you spend underwater, then folds all three into your Edge Score under downside risk and tradability.
It also watches drawdown once you are live. If your running losses start to outrun anything the backtest ever showed, your Health Score drops, which is your early signal that the edge is getting worse rather than just having a rough week.