Drawdown

Glossary · Quant & Stats

Drawdown is the decline from an equity peak to the following trough, expressed as a percentage; maximum drawdown is the worst such drop on record. Recovery is asymmetric — a 20% drawdown needs a 25% gain to break even, and a 50% drawdown needs 100% — which is why position sizing starts from tolerable drawdown.

"Down 50% needs a 100% rally just to get back to flat — that's why position size is the whole game."

Read it off the equity curve: peak to the lowest point that follows, in percent. The recovery math is the part that stings — down 10% needs +11% back, down 20% needs +25%, down 50% needs +100%, down 80% needs +400%. Losing streaks make some drawdown a scheduled event, not bad luck: risking 2% per trade at a 40% win rate, a 10-loss streak (about an 18% hole) is close to inevitable over a few hundred trades.

Drawdown is where the behavioral damage happens — systems get abandoned at the bottom of their normal statistical drawdown, and revenge sizing turns a planned 20% hole into an unplanned 50% one. Write the rules before you're in it: at what drawdown you halve size, at what point you stop and review. And for spot bags, remember alts routinely draw down 80-95% in a bear and plenty never reclaim the old high — 'it always comes back' is Bitcoin survivorship talking.

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Questions

What is Drawdown in crypto trading?

Drawdown is the decline from an equity peak to the following trough, expressed as a percentage; maximum drawdown is the worst such drop on record. Recovery is asymmetric — a 20% drawdown needs a 25% gain to break even, and a 50% drawdown needs 100% — which is why position sizing starts from tolerable drawdown.

How would a trader say it?

Down 50% needs a 100% rally just to get back to flat — that's why position size is the whole game.

Part of the Crypto Jargon glossary — every term, decoded the way a trader would say it.

Crypto Jargon

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