Guide · 2 min read
What drawdown means in trading, and how much is too much
Short answer: Drawdown is the fall from an account's last high to its lowest point before the next high. Read it on equity, not only balance, look at how long it lasted, and remember the recovery maths: the deeper the fall, the bigger the gain you need just to get back. Decide your limit before the drawdown starts.
Published: 24 October 2026.
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Balance drawdown against equity drawdown
Balance changes only when a trade closes. Equity includes trades that are still open. A system that holds losing trades open, such as a grid or a martingale, can show a smooth balance line while equity sinks underneath it. Always ask for equity drawdown. Our guide on how to spot a martingale gold EA shows what that gap looks like.
Maximum drawdown is a floor, not a ceiling
Maximum drawdown is the worst fall in the record so far. A longer record, or a different market, can produce a worse one. Treat the tested maximum as a minimum to expect on a real account, not as a promise.
The recovery maths
The gain you need to get back to the old high grows faster than the loss:
- A 10% drawdown needs an 11.1% gain.
- A 20% drawdown needs a 25% gain.
- A 30% drawdown needs a 42.9% gain.
- A 50% drawdown needs a 100% gain.
This is why risk per trade matters more than any entry rule. Our guide on how much to risk per trade shows how losing streaks turn into drawdowns.
Depth and length
Look at how long the worst drawdown lasted, from the high to the new high. Many traders give up during a long flat stretch, not during a sharp drop. If you would not sit through a year without a new high, a strategy whose record shows one is not for you.
Set the limit before you need it
Write down two numbers before you start: the fall at which you pause and check, and the fall at which you stop. At BaroqTech, a strategy that falls deeper than 1.5 times its worst tested drawdown is switched off and sent back to research. That rule is on the method page, and every result is on the record.
Watch a drawdown on demo money
A Baroq AI agent shows its demo account as one line, with the open trades under it, and switches itself OFF when its day loses your daily limit. Shape one and watch how its line behaves. Demo results do not predict real ones.
FAQ
What is drawdown in trading?
Drawdown is how far an account falls from its last high point before it makes a new high. It is usually shown as a percentage of that high.
What is the difference between balance and equity drawdown?
Balance drawdown counts only closed trades. Equity drawdown also counts trades that are still open. An EA that holds losing trades can show a small balance drawdown and a large equity drawdown.
What is maximum drawdown?
The largest fall from a high point to a later low point over the whole record. It is the worst stretch a strategy has had so far, not the worst it can have.
Why is a 50% drawdown so hard to recover from?
Because the gain needed is measured on a smaller account. After a 50% loss you need a 100% gain to get back to where you started.
How much drawdown is acceptable?
There is no single number. Set the limit before you start, as a fall you can sit through without changing the rules, and stop when the live drawdown goes well past what the tests showed.
How long can a drawdown last?
Months, sometimes longer. Read the time to recover as well as the depth. A shallow drawdown that lasts a year can be harder to live with than a deep one that heals in weeks.
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An educational tool. It is not investment advice. Trading leveraged products such as gold CFDs carries a high risk of losing money, and you can lose all of it.
BaroqTech makes software. It is not investment advice and it does not manage money. Trading leveraged products such as gold CFDs carries a high risk of losing money, and you can lose all of it. Results from a test or from a demo account do not predict results on a real account.
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The Loss Limit Handbook
How to pick a daily limit and a floor, size trades so a normal losing streak cannot reach them, and a one-page plan to print.