Why does every strategy have drawdowns?

A drawdown is the fall from the highest point of your equity to the lowest point after it. Every strategy with a real edge still produces losing runs, so drawdowns are the price of the edge, not a flaw. Their size follows from how much you risk per trade and how long a losing run can get.

What it is

Drawdown is the fall from the highest point of your equity to the lowest point after it, before a new high. Max drawdown is the worst one in the record. In BuildTrade™ it sits next to the return on every backtest result, and a bot’s automatic stop is set against it.

Why it matters

The number tells you what the strategy will feel like to hold. A return that looks fine on paper can come with a drawdown you would never sit through with real money, and knowing that before you go live is the whole point of the figure.

What the research says

The systems literature treats drawdown as the direct product of two things you can estimate: how much you risk per trade and how long a losing run can get, which any system with a positive expectancy still produces. The same arithmetic in units of risk: ten losses in a row at one unit each is ten units gone, however good the system. Nobody says drawdown can be avoided; everybody says its size is a choice made through sizing.