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Home>Courses>Risk & Money Management>Lesson 5 of 7

Max drawdown and risk of ruin

The largest peak-to-trough drop in your account, and why it matters.

Risk & Money Management·Lesson 5 of 7

All lessons

By the end of this lesson you'll be able to:

  • 01Define drawdown and max drawdown
  • 02Calculate a simple drawdown
  • 03Explain the recovery math of deep drawdowns
1

Step 1 · Read the guide

Read the guide first

Everything the quiz asks is covered in the linked guide. Read it, then answer the questions below.

What Is Max Drawdown? Your Guide to Trading Risk Metrics
Key terms
Max DrawdownDrawdownRisk of RuinEquity Curve

Step 2 · Take the quiz

Quick check

10 questions

Answer all 10, then check. Wrong answers show a hint and a link back to the guide.

  1. Question 01

    What is max drawdown?

  2. Question 02

    Your account peaks at $10,000 then falls to $8,000. What is that drawdown?

  3. Question 03

    A 50% drawdown requires what gain to break even?

  4. Question 04

    Why are deep drawdowns mainly dangerous?

  5. Question 05

    How does max drawdown differ from a regular drawdown?

  6. Question 06

    What does keeping risk per trade small help to do?

  7. Question 07

    Your account falls from $20,000 to $15,000. What is the drawdown?

  8. Question 08

    A trader who risks 20% per trade is most exposed to:

  9. Question 09

    What does reviewing your worst drawdown in a backtest help you do?

  10. Question 10

    After a large drawdown, what is a sensible response?

Answered 0 of 10 · pass 70% (7/10) to complete

Risk & Money Management5 of 7
  1. Risk management fundamentals
  2. The risk-reward ratio
  3. Position sizing
  4. Stop loss and take profit
  5. →Max drawdown and risk of ruin
  6. Money management and diversification
  7. Performance metrics: win rate, Sharpe, Sortino
  8. ⚑Final Assessment· 20 Q