You climb a hill. The top is your peak. Then you walk down, and how far you are below the peak is your drawdown. It ends when you climb above the old peak. In trading, the height is your equity. Drag the hiker to see it.

Say you hold a gold trade. Your equity rises and falls with the price, so it climbs, dips and climbs again. Each new high your equity reaches is a peak.

Drawdown is the drop from your peak to the lowest point after it. From $1,200 down to $1,000 is a drawdown of $200, about 17 percent of the peak. It is measured on equity, so open trades count.

A drawdown lasts until your equity makes a new high. Until then you are still in it, even if you are recovering.

Every trader has drawdowns, even the best ones. They are a normal part of trading, so expect them. Figures are illustrative.

Drawdown is the drop from a peak to a low. Every trader has them.