What Is Drawdown Really?

People treat drawdown like a number on a dashboard, but it’s actually the measurement of whether your account can survive normal volatility.

1. Drawdown = Distance Between a Peak and a Drop

Drawdown measures how far your account falls from its highest point before it recovers.

Example:

• Your account hits $5,000
• It drops to $4,500

You are in a $500 drawdown.

2. There Are Only Two Types

**Closed Trade Drawdown**

Measures loss based on finished trades. This is the true “risk” of your system.

**Intra-Trade (Open) Drawdown**

How far a trade goes against you before it finishes. This is the one that blows people up — especially in futures.

3. Why Drawdown Happens Even If Your Idea Was Right

• Volatility spikes
• Entry timing is off by a few seconds
• Your stop is too tight
• Your size is too big for normal movement

Drawdown doesn’t mean you were wrong. It means your account couldn’t handle the wiggle.

4. In Futures, Drawdown Is Mostly About Tick Size

ES: $12.50 per tick NQ: $5 per tick MES/MNQ: smaller but still adds up fast

If your stop is 10 ticks on NQ, that’s $50 per contract. On ES it’s $125. On a small account, that’s enough to create meaningful drawdown instantly.

5. Prop Firms Treat Drawdown Like a Tripwire

Whether it's trailing drawdown or static, the firm does not care about "your idea" or “your system.”

They only care whether your account ever touches the wrong number.

6. Good Trading Survives Drawdown

The point isn’t avoiding drawdown — that’s impossible. The point is keeping it small enough that it never takes you out of the game.

• Small size
• Reasonable stop distance
• No doubling down
• No revenge trades

You don’t control whether price wiggles. You control whether it kills you.