Definition
How far realized performance fell below an earlier peak.
Formula. Largest peak-to-trough decline in cumulative closed-trade P&L. Starts at zero and excludes unrealized positions and deposits. Trades that close at the same instant move equity once, together, so row order cannot create a drawdown.
Two definitions, one account
| Definition | What it includes | Typical result |
|---|---|---|
| Closed-trade drawdown (Orderblock) | Cumulative realized P&L only | Smaller; ignores unrealized excursions |
| Equity drawdown | Realized plus open-position mark-to-market | Larger; matches what you felt at the time |
| Balance drawdown incl. deposits | Realized P&L plus cash movements | Distorted; deposits mask losses |
How it goes wrong
- Comparing across definitions
- A platform reporting equity drawdown will always show a larger number than a closed-trade measure. That is a definitional difference, not a discrepancy.
- Reading it as a risk limit
- Historical maximum drawdown is the worst that happened, not a bound on what can happen. The next one is routinely larger.
- Letting deposits hide it
- Drawdown computed on account balance including deposits understates losses. Orderblock excludes cash movements entirely.
Questions
Why is my drawdown smaller here than in my platform?
Because this figure excludes open-position mark-to-market and deposits. Your platform is likely showing equity drawdown, which includes unrealized excursions on positions you were still holding.
Should I use drawdown to size positions?
Only as one input. Past maximum drawdown tells you what your method has already produced; it does not bound future losses, and sizing off it alone systematically underestimates tail risk.