What is a good max drawdown? Ratios and limits for futures
A good max drawdown is one you can fund and sit through: many systematic futures traders keep the planned worst loss under about a fifth to a quarter of the account and judge a strategy by net profit divided by max drawdown. Plan for 1.5 to 2 times the backtest figure, write the stop limit before the first trade, and size contracts from it.
By Soren Huang · Published · updated · Editorial policy
Contents
What is a good max drawdown for a trading strategy?
What is a good max drawdown? One you can fund and sit through. As a working limit, many systematic futures traders keep the planned worst loss under about a fifth to a quarter of the account, and they judge a strategy by net profit divided by max drawdown rather than by the drawdown figure alone.
Max drawdown is the largest fall of the equity curve from a high to the following low before a new high is reached, measured in money or as a percent of the account. The free drawdown calculator reads it from an equity series, and how to measure maximum drawdown covers the measurement in detail. The figure means nothing on its own, because the same dollar loss is a different event on a different account.
Hypothetical example
A strategy has a $15,000 max drawdown. On a $30,000 account that is half the money gone. On a $60,000 account it is a quarter. On a $100,000 account it is 15 percent, which most traders can sit through without changing anything.
The second check is the return-to-drawdown ratio. The return-to-drawdown ratio is yearly net profit divided by max drawdown, and it tells you how many years of normal profit the worst loss would cost. Two strategies with the same yearly profit are not equal: the one with the smaller drawdown needs a smaller account for the same number of contracts and is easier to hold through a losing stretch.
How much worse is the live drawdown than the backtest?
Treat the backtest max drawdown as a floor, not a ceiling, and plan for roughly 1.5 to 2 times that figure. A backtest replays rules on old prices and shows one ordering of the trades. The live sequence will put the same kinds of trades in a different order, and a different order gives a different deepest valley. Bailey et al. (2014) add a second reason: a strategy kept because it looked best in a search carries a selection bonus, so its backtest result is flattered.
A Monte Carlo reshuffle makes the first reason visible. Monte Carlo simulation is a method that reshuffles the list of trade results many times and records the max drawdown of each ordering, which Metropolis and Ulam (1949) described as a way to see a range instead of a single outcome. A Monte Carlo backtest shows how to read the resulting spread.
The run behind this article shows the idea on real data. AlphaPrime (Valynox) tested ES daily bars from 2019-01-02 to 2025-06-30, long and short, one contract. It is the one candidate the search kept out of 1,024 it tried, for its return against its drawdown, using a HalfTrend rule as its only entry and exit, with no stop, target or filter. That rule is a stand-in built from standard indicators, not a drawdown rule itself. Picking the kept candidate after the fact flatters its numbers, so read them as a sample for the reshuffle, not as something the rule earned or a reader can expect.
Source: AlphaPrime product engine (CPU), run 2026-10-31. ES daily bars, 2019-01-02 to 2025-06-30, long and short, 1 contract, $20 commission and $25 slippage per trade.
| Number | Result |
|---|---|
| Net profit (closed trades) | $80,597.5 |
| Max drawdown | $62,805 |
| Trades | 37 |
| Win rate | 48.65% |
| Profit factor | 1.979 |
| Average trade | $2,178.31 |
| Time in market | 86.96% |
The max drawdown of $62,805 sits not far below the net profit of $80,597.5, which already says the worst loss is large relative to what the run made. Reshuffling the same 37 trades shows how much deeper it could have been in another order.
How long does a drawdown normally last?
Drawdown length is measured in trades and months from the old equity high to the new one, and a slow strategy can stay below its high for many months even when it ends profitable. The run above took 37 trades in six and a half years and was in the market 86.96 percent of the time, so single positions ran for weeks. Between an equity high and the next, several trades had to close, and each trade took time. The waiting is what most traders feel, not the depth.
Magdon-Ismail and Atiya (2004) show that the expected max drawdown grows with the length of the period you look at, so a longer live record will usually contain a deeper and longer valley than a short backtest. When you read a backtest report, note the longest stretch under water as well as the deepest one. The equity and drawdown panels of AlphaPrime's Performance Report show both on one screen, so the time below the last high is read off the chart rather than guessed from the trade list.
When should you stop a strategy?
Stop when the live drawdown passes a limit you wrote before the first trade, usually the inflated backtest drawdown, and review early when it reaches a set fraction of that limit. A rule written in advance is the only way to keep the decision out of the hands of the current loss. Two levels are enough.
| Live drawdown | Action | What to check |
|---|---|---|
| Under half the limit | Keep trading | Nothing; this is inside normal range |
| Between half and the full limit | Review, keep trading | Trade count, average loss and costs against the backtest |
| At or past the limit | Stop | Any change to the rules is a new strategy and needs a new test |
How do you size contracts to your drawdown limit?
Work backwards from the loss you can accept: divide the money you are willing to lose by the inflated backtest drawdown per contract and round down. The one formula is:
contracts = acceptable loss ÷ (backtest drawdown per contract × inflation factor)
Here the acceptable loss is the dollar amount you could watch disappear without stopping early, the backtest drawdown per contract is the max drawdown from a one-contract run, and the inflation factor is the 1.5 to 2 from the second section. The result is rounded down because a fraction of a contract cannot be traded.
Hypothetical example
Acceptable loss $40,000. One-contract backtest drawdown $12,000. Multiplied by 1.5 that is $18,000. $40,000 divided by $18,000 is 2.2, rounded down to 2 contracts. If the loss is to stay under 25 percent of the account, the account needs $160,000.
The same chain tells you when a strategy is too large for you: if the answer rounds down to zero, the account is too small for even one contract, and no change to the rules fixes that. Take your own one-contract backtest drawdown, multiply it by 1.5, and put the result into the free position size calculator next to your account to see how many contracts your limit allows.
Frequently asked questions
What is a good max drawdown percentage?
Many systematic futures traders keep the planned worst loss under about 20 to 25 percent of the account. The percent only has meaning next to the account size and the yearly profit, so check both: a drawdown that is a quarter of the account and half a year of profit is easier to hold than one that is a quarter of the account and three years of profit.
How much worse is live drawdown than backtest?
Plan for roughly 1.5 to 2 times the backtest max drawdown. The backtest shows one ordering of the trades, and the live ordering will differ; a strategy chosen from many candidates also carries a selection bonus. A Monte Carlo reshuffle of the trade list shows how wide the range of possible drawdowns is for the same trades.
How long can a drawdown last?
Months to years, depending on how often the strategy trades. A strategy with a handful of trades a year needs several trades to recover, and each one takes weeks, so the time under water can be longer than the depth suggests. Read the longest stretch below the last equity high in the backtest report alongside the deepest one.
When should I stop a trading strategy?
When the live drawdown reaches a limit you wrote before the first trade, usually the inflated backtest drawdown. Review earlier, at about half the limit, by comparing trade count, average loss and costs with the backtest. Any rule change after a stop makes a new strategy that needs its own test.
References
- Bailey, D. H., Borwein, J., López de Prado, M., & Zhu, Q. J. (2014). Pseudo-Mathematics and Financial Charlatanism: The Effects of Backtest Overfitting on Out-of-Sample Performance. Notices of the American Mathematical Society, 61(5), 458–471.
- Metropolis, N., & Ulam, S. (1949). The Monte Carlo Method. Journal of the American Statistical Association, 44(247), 335–341.
- Magdon-Ismail, M., & Atiya, A. F. (2004). Maximum Drawdown. Risk, 17(10), 99–102.