Max Drawdown Calculator
Calculate maximum drawdown percentage and the recovery gain needed to reach peak equity again.
Essential for evaluating trading system and portfolio risk.
Maximum drawdown (MDD) measures the largest peak-to-trough decline in the value of a trading account or portfolio over a specified period. It quantifies the worst-case loss scenario an investor or strategy has experienced — and is one of the most important risk metrics in trading.
Maximum Drawdown formula: MDD (%) = (Trough Value − Peak Value) ÷ Peak Value × 100
Since the trough is always lower than the peak, MDD is always a negative number or expressed as a positive percentage loss.
Recovery required after a drawdown: Required Gain (%) = (1 ÷ (1 − MDD%)) − 1 × 100
This reveals a critical asymmetry: a 50% loss requires a 100% gain to break even. A 25% loss requires a 33% gain.
| Drawdown | Recovery Needed |
|---|---|
| 10% | 11.1% |
| 20% | 25.0% |
| 33% | 49.3% |
| 50% | 100.0% |
| 75% | 300.0% |
Calmar Ratio (using MDD for strategy evaluation): Calmar Ratio = Annual Return ÷ Maximum Drawdown
Higher Calmar = better return per unit of drawdown risk. Target: Calmar > 1.0 (preferably > 2.0).
Ulcer Index (smoothed drawdown measure): UI = √(Σ(Drawdown² per period) ÷ N)
Penalizes deep, prolonged drawdowns more than brief sharp dips.
Drawdown duration: Recovery Time — how many days/trades from trough back to new equity peak. Longer recovery = more psychological strain and opportunity cost.
Worked example: Trading account equity curve (monthly): Jan: $10,000 (starting peak) → Feb: $11,200 → Mar: $10,800 → Apr: $9,500 → May: $8,800 (trough) → Jun: $10,100 → Jul: $11,000 → Aug: $11,500 (new peak)
- Peak before trough: $11,200 (Feb)
- Trough: $8,800 (May)
- MDD = ($8,800 − $11,200) ÷ $11,200 × 100 = −21.4%
- Recovery required from trough: ($11,200 − $8,800) ÷ $8,800 × 100 = 27.3% gain needed
- Recovery duration: May → August = 3 months
If this strategy returns 25% annually, Calmar = 25% ÷ 21.4% = 1.17 — acceptable but not exceptional.