Maximum Drawdown Explained (and Why It Matters More Than Win Rate)

Maximum drawdown is the largest peak-to-trough fall in your account over a period. If you grew $1,000 to $1,500 then fell to $1,050, your max drawdown was 30% from the peak. It's the single best measure of how painful a strategy is to actually hold.

The recovery math is brutal

Drawdowns hurt asymmetrically. A 20% loss needs a 25% gain to recover; a 50% loss needs 100%; an 80% loss needs 400%. This is why avoiding deep drawdowns matters more than squeezing out extra wins.

Why win rate can hide it

A strategy can win 70% of the time and still have a catastrophic drawdown if the 30% of losses are huge. Always look at drawdown next to win rate — a smooth equity curve beats a jagged one with the same end value.

Managing it

Fixed-fractional risk (1–2% per trade), avoiding correlated positions, and skipping low-quality setups all cap drawdown. Signal Bench's public performance reports go beyond win rate for exactly this reason.