Giordano Salvatori, founder of STA · 19/10/2026 · 5 min read
The drawdown measures how far your account has fallen from the highest point it touched. It does not look at where you started, it looks at where you are falling from. If the account reaches €10,000 and then falls to €8,000, you are in a 20% drawdown. Until you get back above €10,000, the drawdown stays open.
The number you read most often is the maximum drawdown, that is, the deepest drop seen over a given period. It tells you something the final result does not: how bad the worst stretch was, and so how much you would have had to endure to get there.
The formula is short: (peak − next low) divided by peak, as a percentage. With a peak at €10,000 and a low at €8,000, you do 2,000 divided by 10,000, that is 20%.
If you repeat the calculation over the whole history of the account and keep the largest value, you have the maximum drawdown. All the numbers in this article are invented examples to explain the calculation, not the results of any system.
This is the part that surprises almost everyone. If you lose 50%, gaining 50% is not enough to get back to the starting point: you need 100%. The reason is that the gain is calculated on a smaller capital.
| Drawdown (illustrative example) | Gain needed to recover |
|---|---|
| 10% | 11,1% |
| 20% | 25% |
| 30% | 42,9% |
| 50% | 100% |
| 70% | 233% |
The curve climbs fast. A 10% drawdown is recovered with a normal stretch of market, a 50% one requires doubling the capital that is left. That is why people who work on risk first think about how to avoid deep drawdowns, and only then about how to earn more.
There is no threshold that works for everyone, but a series of consecutive losses is normal in any system, even one that stays positive over the long run. The size of the risk per trade decides how much that series hurts. Illustrative example: ten losses in a row at the stop.
| Risk per trade | Drop after 10 losses in a row |
|---|---|
| 1% of the account | about 9.6% |
| 5% of the account | about 40.1% |
| 10% of the account | about 65.1% |
Losses apply each time to the capital that is left, which is why the totals are a bit lower than the plain sum. At 1% the run is annoying, at 10% it is almost fatal. Before you start it is worth asking yourself which drawdown you could really endure without changing strategy halfway, and sizing the risk accordingly.
With leverage (a position larger than the capital you put in) every price move weighs more on your account. A 5% drop in price at 10x leverage is worth about −50% of the amount committed, before even counting costs. You do not need a crashing market to fall into a deep drawdown: a position that is too big for the account is enough. A stop exists precisely to cap the loss on each single trade, and it is the first building block for keeping drawdown under control.
A return without its drawdown is half the information. Two systems can end the year with the same result, but one got there with a maximum drop of 10% and the other with one of 45%. The second demanded a very different capacity to endure. When you see results, always ask for the maximum drawdown, over how long it was measured and whether the numbers are net of fees and funding (the periodic payment between those who are long and those who are short on perpetual contracts). A short, favourable period hides the worst stretches.
Every STA card has a stop, so before entering you know how much you can lose on that single trade. The rest is up to you: how much of the account you put on each card determines how far the account can fall in an unfavourable run. In the free DEMO you can follow the cards with virtual capital and real prices, note the maximum drop you see and work out whether you would endure it with your own money. The history of the cards is verifiable online, with the hashes on GitHub, including the periods that went badly.
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Try DEMO for free →This article is for information only and is not investment advice. Trading crypto-assets involves a high risk, including the total loss of the capital used. Numerical examples are for illustration.
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