# Drawdown and Maximum drawdown calculation

**Drawdown** (DD) measures the decline in the equity of a trading account due to losing trades over a specific period, expressed as a percentage.

**Maximum drawdown** (Max DD) indicates the largest decline in the equity of a trading account from the highest point through the lowest point during the account's lifetime.

#### Formulas

DD is calculated against the account return that, in its turn, is calculated for periods between balance operations made on that account (for details, refer to [Return calculation](https://docs.b2copy.b2broker.com/copy-trading-pamm-and-mam-concepts/return-calculation)).

Suppose that the following return ratios are calculated for a trading account over three periods:

<table><thead><tr><th width="121">Periods</th><th width="109">Return</th><th>Maximum return</th></tr></thead><tbody><tr><td><strong>Period 1</strong></td><td>3.6000</td><td>3.6000</td></tr><tr><td><strong>Period 2</strong></td><td>1.3636</td><td>3.6000</td></tr><tr><td><strong>Period 3</strong></td><td>1.0000</td><td>3.6000</td></tr></tbody></table>

The highest return during the account's lifetime, which is 3.6000 in this example, is recorded as the Maximum return for the account.

If the return for a specific period is equal to the Maximum return, then the DD for that period is 0 (zero), meaning that no losses were incurred on the account.

If the return for a specific period isn’t equal to the Maximum return, the DD is calculated as follows:

`DD = 1 - (1 + Return) / (1 + Maximum return) * 100`

where:

* **Return** is the account return calculated for a period between balance operations.
* ‍**Maximum return** is the highest return recorded for the account during the account's lifetime.

In this example:

The **Period 1** DD is 0.

The **Period 2** DD is calculated as follows:

`DD P2 = 1 - (1 + 1.3636) / (1 + 3.6000) = 0.4862 * 100 = 48.62%`

The **Period 3** DD is calculated as follows:

`DD P3 = 1 - (1 + 1.0000) / (1 + 3.6000) = 0.5652 * 100 = 56.52%`

The highest DD during the account's lifetime, which is 56.52% in this example, is recorded as the Max DD for the account.