Drawdown is the distance between your account's peak and its current trough — and it is governed by the least forgiving arithmetic in trading: losses and gains are not symmetric. Understanding exactly how unfair the math is changes how you size everything.
The asymmetry
Lose 10% and you need 11.1% to get back to even. Lose 20%, you need 25%. Lose 33%, you need 50%. Lose 50%, you need 100% — a double, just to be back where you started. Lose 75% and the required recovery is 300%. The gain needed grows faster than the loss that caused it, because every recovery must be earned on a smaller base. This is why capital preservation is not a slogan: percentages down cost more than the same percentages up are worth, always, mechanically.
The table worth memorizing: −10% → +11% · −20% → +25% · −30% → +43% · −40% → +67% · −50% → +100% · −60% → +150%. Notice the knee in the curve around −30%: below it, recovery requirements stop being "a good quarter" and start being "a different career." Every professional risk rule exists to keep accounts above that knee.
Drawdown is normal; depth is chosen
Every strategy that takes risk spends most of its life below its own high-water mark — that is what a return stream with losses in it looks like. The part you control is depth, and depth is a direct function of per-trade risk and correlation. Ten consecutive losses — a stretch any 50%-win-rate system will eventually produce — draws down ~9.6% at 1% risk, ~40% at 5%, and ~65% at 10%. Same trader, same signals, same streak: one version is annoyed, one is crippled, one is gone. The streak was never the variable. The sizing was.
Correlation is the hidden multiplier: three "separate" 2% positions that share a theme are one 6% position, and a single adverse night can produce a drawdown you thought required six mistakes.
The psychological compounding
The math is only half the damage. Deep drawdowns degrade the trader: pressure to "make it back" produces bigger sizes and looser setups — precisely the behaviors that deepen the hole. This loop, not the initial losses, is how most accounts actually die. The defense is deciding the rules before the drawdown: professionals pre-commit to de-risking thresholds — for example, cut all position sizes in half at a 10% drawdown, halve again or stop at 20%, full stop and review at some hard floor. Cutting size in a drawdown feels wrong ("I need bigger wins now") and is exactly right: it buys time, and time is what a valid edge needs to reassert itself. If the edge was not valid, the smaller size means the discovery is affordable.
Measuring yours honestly
Track maximum drawdown (worst peak-to-trough in your history), current drawdown, and time under water — how long since the last equity high. Time under water is the neglected one: a strategy that loses little but spends nine months below its high may be intolerable to actually trade, and knowing your own tolerance for both depth and duration is as much a system parameter as any indicator setting. When testing a system, assume the future's worst drawdown will exceed the backtest's — it almost always does, because the backtest is one sample and the future is many.
The rule the math implies
Set your per-trade risk so that a realistic worst streak leaves you above the depth where recovery math and psychology turn hostile — for most traders, that means keeping plausible drawdowns inside 15–20%. Everything else in trading is optional style. Staying above the knee of the recovery curve is not.