Maximum drawdown is the largest drop from a peak in your equity to the following trough, measured as a percentage. It answers the question that matters most in the moment: how bad does it get? A strategy you cannot stomach is a strategy you will abandon at the worst time.
Why it matters more than returns
Returns look good on paper; drawdown is what you actually live through. A 60% drawdown needs a 150% gain just to break even. Prop firms fail you long before that. The size of the drawdown, not the average return, usually decides whether a strategy is tradeable.
What is acceptable
It depends on your temperament and your account, but as a guide: under 20% is comfortable, 20-35% is demanding, and above 40% is where most real accounts — and every prop challenge — break. If your backtest shows 60%, the edge may be real but the sizing is not survivable.
How to reduce it
Cut risk per trade, add a filter that skips the worst conditions, diversify across uncorrelated setups, or use a daily loss limit. Often the fastest fix is simply risking less per trade — it shrinks drawdown directly.
See your true drawdown
Bulk Quant reports your maximum drawdown across 20+ years and flags when it reaches account-blowing levels. Test your strategy free.