What Is Drawdown? | What Are Forex Signals?

Drawdown is the decline in an account’s value from a peak to a later low, usually shown as a percentage. Maximum drawdown is the largest such decline over a given period, and it is one of the most useful single numbers for judging how risky a trading record really is.

How to calculate it

Drawdown = (peak value − trough value) ÷ peak value

An account grows from $10,000 to $12,000, then falls to $8,400 before recovering. The drawdown is measured from the $12,000 peak, not the starting balance:

($12,000 − $8,400) ÷ $12,000 = 30%

The account is still only 16% below where it started, but anyone who joined at the peak lost 30%.

Why recovery is harder than the fall

Losses and gains are not symmetrical. After a fall, you need a larger percentage gain to get back to the peak, because you are growing a smaller balance:

Drawdown	Gain needed to recover
10%	11.1%
20%	25%
30%	42.9%
50%	100%
75%	300%

The formula is: gain needed = drawdown ÷ (1 − drawdown). This is why large drawdowns are so damaging, and why risk per trade matters more than any single trade’s outcome. The probability side is covered in drawdown and risk of ruin.

What drawdown tells you about a signal service

It reveals hidden risk. Two providers with the same monthly return can have very different drawdowns. The one with a 60% maximum drawdown took far more risk to get there.
It exposes high-win-rate systems. Martingale and grid strategies often show smooth gains with small drawdowns until one large drawdown erases months of profit. See why win rate is misleading.
Short records understate it. A record of a few months has rarely lived through a bad market. The worst drawdown is usually still to come.
Closed-trade drawdown can hide open losses. Some reports only count closed trades. A provider holding large losing positions open can look calm on paper. Ask for drawdown measured on equity, including open positions.

Drawdown and position size

Drawdown is not a property of a signal alone; it depends on how much you risk per trade. Ten losses in a row at 1% risk per trade is a drawdown of about 9.6%. At 5% per trade it is about 40%, and you would need a gain of about 67% to recover. The stop loss defines how far a trade can go against you; your lot size decides how much of the account that costs.