How to Track Your Drawdown
To track your drawdown, record the highest equity your account has reached and measure the current balance against it as a percentage. The deepest drawdown and the time spent recovering from it are what determine whether a method can actually be followed in practice.
Drawdown is how far the account sits below its own highest point. It is the measurement that decides whether a method can actually be followed, and it is quoted far less often than the returns it comes attached to.
Before you start
A running peak equity figure, because drawdown is measured from it. Every time the account makes a new high, the reference moves up.
A decision about whether you measure closed equity or including open positions. Both are defensible; mixing them produces a series that means nothing.
An honest expectation of how long recoveries take. The S&P 500 fell 56.8% from October 2007 and did not close above that peak again until March 2013, five and a half years later.
The steps
1. Record the running peak
Highest equity reached so far. It never falls, and every drawdown is measured against wherever it currently sits.
2. Measure the current gap as a percentage
Peak minus current, divided by peak. That figure, recorded regularly, is the series you actually want.
3. Track duration as well as depth
How many days since the last high. A shallow drawdown lasting months is a different experience from a sharp one lasting a week, and the depth figure cannot distinguish them.
4. Note the maximum and when it happened
The deepest point reached, with a date and a note about what was happening. That is the figure to size against, because it is the one you have actually survived.
5. Understand the recovery arithmetic
A 10% loss needs an 11.1% gain to recover; a 20% loss needs 25%; a 50% loss needs 100%. The requirement grows faster than the loss, which is the whole argument for keeping drawdowns small.
6. Compare it against a measure that includes duration
The ulcer index is one: the square root of the average squared drawdown, a single figure combining how deep and how long. Say the account spends ten weeks 5% below its peak — the ulcer index over those weeks is 5%. Spend one week 15% down and nine at the high, and it is about 4.7%, even though the maximum drawdown is three times deeper.
7. Reduce size when the drawdown deepens
Sizing from a percentage of current equity does this without a decision. The position shrinks as the account falls, which is what makes a long recovery survivable.
How to tell it worked
A running peak is recorded, updated whenever a new high occurs.
Both depth and duration are tracked, not depth alone.
The maximum is written down with a date, so it can be sized against.
And position size recalculates from current equity, checked at least 1 time per month.
What the real figures look like
The S&P 500 has closed below its previous record on 93% of trading days since 1950. Being in a drawdown is the ordinary condition, not an exception — the account is at a new high on a small minority of days.
Its worst fall was 56.8%, from October 2007 to March 2009, and its longest wait for a new record was 7.5 years, from January 1973 to July 1980. Those are the kinds of numbers a method has to be sized to survive, and they come from the index’s actual closes rather than an estimate. They use daily closes from January 1950 to September 2026, price only, without dividends.
Drawn day by day, being below the high is the normal state. The daily closes behind the chart below are published, so both figures can be checked.
Why duration is the harder half
A sharp fall that recovers quickly is unpleasant and brief. The account is back at its high before the doubt has time to accumulate.
A shallow one lasting months is where methods get abandoned. Nothing dramatic happens; the account simply fails to make progress for long enough that the approach starts to look broken.
And the depth figure treats them identically. Two drawdowns of the same percentage, one lasting a week and one lasting a year, produce the same maximum — which is why a measure incorporating time is worth computing alongside it.
Two figures to write on the wall
The maximum drawdown you have actually experienced. Not a theoretical one, not a backtested one — the deepest the account has genuinely been, with the date beside it.
The longest time it has taken to recover. Measured in days from the old high to the new one, which for the S&P 500 since 1950 ran to 7.5 years in the worst case.
Those two numbers are what you size against. A method whose worst historical drawdown is 15% needs a position size where 15% is survivable without changing anything, because it will happen again and probably worse.
And they are the only honest answer to “is this normal”. Every method produces losing stretches; the question during one is always whether this is inside the range the approach produces, and only a record can answer it.
The original data
Of the 24,971 unique videos in the search study behind this site, 7 mention drawdown in the title, at a median of 3,813 views across 7 channels, and 57% of those titles are instruction-shaped. Win rate appears in 169 at 15,735 and risk management in 410 at 4,079. No video is counted twice, however many searches surfaced it.
7 videos on drawdown against 169 on win rate. The measurement that determines whether a method can be lived with has a twenty-fourth of the coverage of the one that can be improved by trading worse.
The question: Down 12% for two months. Change the method?
The answer depends on whether 12% is inside what the method produces. If you measured the maximum in advance and this is inside it, nothing has happened yet — and if you never measured it, there is no way to tell a normal stretch from a broken approach.
When it fails
The failure is not measuring it until it hurts, and by then the number has no context. The account falls 15% and the immediate question is whether that is normal for this method. Without a record there is no answer, so the decision gets made on how it feels — which at 15% down is uniformly negative. The method gets abandoned or the sizing gets increased to recover faster, and both responses are chosen by the absence of a measurement rather than by anything about the approach.
The second failure is depth without duration. A long shallow one is worse.
A third is mixing closed and open equity. The series stops meaning one thing.
A fourth is a fixed position size. It should fall with the balance.
A fifth is measuring from the starting balance. The peak is the reference.
And a sixth is expecting to be at a high. The S&P 500 closed below its record on 93% of days since 1950.
Related
Drawdown covers the measurement itself. Ulcer index combines depth and duration into one figure. And risk management is the framework that keeps drawdowns survivable.
Duration is the part nobody warns you about. A modest drawdown that lasts four months is far harder to sit through than a sharp one that recovers in a fortnight, and the depth figure — the one everybody quotes — treats those two as identical.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.