Forex Drawdown of a trading system is defined as the distance between the maximum and the minimum in the equity of a period, ie it is the worst streak of losses from the last maximum until it is exceeded by the next maximum. It is very common to speak of the maximum or historical Drawdown that is the worst streak of losses occurred during the entire trading period.
It can also refer to a decrease in the balance of a trading account.
For example, if you have an account with 5000 USD and you lose 1000, your account will have 4000 having suffered a drawdown of 20%. Knowing the drawdown suffered in a trading account is an important part of controlling risk. Traders will normally have a maximum drawdown limit that they are willing to assume in their trading plan.
Let’s look at a small example in the currency pair EUR/USD:
