What is drawdown and how it affects our trade and trading capital


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Can you tell me in a simpler words what is a drawdown which is calculated during backtest. How it affects our trading capital and trades. Does drawdown means percentage of loosing trades
Drawdown simply means maximum reduction in total equity capital after a losing streak.This helps us to calculate the total capital needed for a strategy to outperform after series of loosers hitting the account.


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Sawaal pe sawwal Sawaal pe sawwal! aakhir jawab de ke mila kya , phir se sawaal , aakhir ye sawaal kab band honge !! ye bhi ek sawaal hai .
Kamaal kar ditta tussi, raviji bache bhaiya,papa ya bado se sawaal nahi karenge toh kisse karenge?
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Drawdown= Maximum Losing amount in a series of trades

example if u have 100 rs and the drawdown is 30 rs
there is a chance of losing 30 rs out of 100 in a series of trades
so that you can increase your capital to 130 rs to handle the drawdown

Drawdown keeps on varying with the percentage of winners and losers
Drawdown is the difference between peak values and lowest values(troughs)
For example if a portfolio starts being worth $100,000, increases in value to $150,000, decreases to $90,000, increases to $120,000, then decreases to $80,000, then increases to $200,000, the max drawdown is ($150,000-$80,000)/$150,000 = 46.67%

Maximum drawdown formula
Max Drawdown = (Peak value before largest drop-Lowest value before new high established)/(Peak value before largest drop)

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