Drawdown: the four things the word means
“What is drawdown, and why does my number not match the one my platform shows?”
Drawdown is a fall from a high-water mark. The disagreements come from which high-water mark, measured on what, and over what window — four common definitions produce four different numbers for the same account, and they are all correctly called drawdown.
In short
Ask which peak, and whether open positions count. Those two questions separate almost every version of the figure, and a prop firm's answer is usually not the same as a journal's.
Maximum peak-to-trough drawdown
The largest fall from any equity high to any subsequent low, over the whole history. This is the figure a journal reports by default, and it is order-dependent: the same trades in a different sequence produce a different maximum.
It is a single number describing the worst stretch that happened. It says nothing about how long the account spent in it, which is why time-in-drawdown is reported beside it.
Closed equity versus including open positions
A curve built from closed trades only moves when a position is closed. A curve including unrealised P&L moves continuously, and it can register a drawdown that the closed-equity curve never shows — a position held through a large adverse move and then closed at break-even is invisible in one and severe in the other.
Neither is wrong; they answer different questions. What causes trouble is comparing a closed-equity figure from a journal against an intraday figure from a broker or a prop platform and expecting them to agree.
Daily loss, which is not a drawdown at all
A daily loss limit measures one day against that day's own starting balance, and it resets. It is a floor, not a fall from a peak, and a book can breach a daily limit on a day when the account is at an all-time high.
Mixing the two is a common source of confusion when a rule set uses both — which most prop firm rule sets do.
Trailing drawdown, and why it is the hardest to reproduce
A trailing drawdown moves its floor up as the account makes new highs, and often does not move back down. Where the high-water mark tracks the intraday unrealised peak rather than the closed balance, the floor can be raised by a level the account touched for a second and never held.
That version cannot be reconstructed from trade rows at all: the rows record fills, and the peak happened between them. Any figure derived from a journal is therefore an estimate of it, and should say so.
Recovering from one is not symmetrical
The gain needed to return to the previous peak is larger than the fall that caused it, because it is measured against a smaller balance. A 20% fall needs a 25% gain; a 50% fall needs 100%. This is arithmetic rather than a claim about markets.
Questions
- Which drawdown number should I compare between two periods?
- The same one, computed the same way, on the same basis — that is the only requirement that matters. A closed-equity maximum compared against an intraday trailing figure is not a comparison of two periods, it is a comparison of two definitions.
- Why does my journal show a smaller drawdown than my prop dashboard?
- Almost always because the firm's figure follows the unrealised intraday peak while the journal's follows closed trades. The firm sees the moment a position was furthest ahead; the journal only sees the fills.
- Does a drawdown figure predict anything?
- No. It describes the worst stretch in the sample it was computed from. A longer sample tends to contain a larger maximum simply because it contains more opportunities for one, which is a property of sampling rather than of the account.
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