Drawdown: What It Is and How to Read It
How far a portfolio falls from its high, why that matters as much as the return, and where you'll see it on Botsfolio.
Drawdown is how far an account falls from its highest value before it recovers, as a percentage of that high. The biggest one in a record is the maximum drawdown, and it's the closest thing to a measure of pain: the fall you would have had to sit through. Deep drawdowns are expensive, because a 50% fall needs a 100% gain to get back to even. On Botsfolio, every portfolio shows its biggest drop next to the biggest drop from holding the same coins, and every setup track record shows its drawdown at 1%, 2% and 5% risk per trade.
What drawdown means
Drawdown measures a fall from a high, not a loss from where you started.
Say you deposit $10,000. It grows to $14,000, falls to $10,500, then climbs to $15,000. You never dropped below your deposit, but at $10,500 you were $3,500 below your $14,000 high. That fall, 25% of the high, is the drawdown.
The calculation is simple: take the high, subtract the low that came after it, and divide by the high.
Drawdown = (high - later low) ÷ high
Maximum drawdown is the largest of those falls across the whole record. When a Botsfolio page says biggest drop, this is what it means.
Why it matters as much as the return
A return is calculated as if you held through everything. Real people don't. They sell somewhere near the bottom of the worst fall, because that's when it hurts most, and they never see the recovery. The biggest drop is the number people quit on.
Deep falls are also expensive to climb out of. The gain you need to get back to the high grows much faster than the fall:
A 20% fall needs a 25% gain. A 50% fall needs 100%. A 75% fall, which holding Bitcoin and Ethereum has delivered more than once, needs 300%. That's why a portfolio with a smaller drop can come out ahead even when it rises less in good times: it has less ground to make up after bad ones.
Drawdown, live: Botsfolio AI vs holding in 2026
In 2026, holding Bitcoin and Ethereum fell 46.5% from its January 14 high to its June 30 low. Botsfolio AI's BTC & ETH Cycle Trader, paper trading the same coins with the same money, had a biggest drop of 8.7% over the same months. The chart updates daily. For the whole story, including when holding did better, read buy and hold vs an AI-managed crypto portfolio: the 2026 numbers.
Three numbers people mix up
- Maximum drawdown is the biggest fall from a high in the whole record.
- Current drawdown is how far below its high the account is right now. A record can have a small maximum drawdown and still be in one today.
- Time underwater is how long it takes to get back above the old high. A 20% fall that takes two years to recover can be harder to live with than a 30% fall that recovers in a month.
There's a fourth number on setup cards that sounds similar but isn't: typical dip first. It's how far price usually moves against a single trade before that trade works out, measured in R. It's about one trade, not your account.
How to read drawdown on Botsfolio
On portfolios
Every portfolio card and page shows the biggest drop for the AI and for holding the same coins. It's measured on the portfolio's value at every daily close, open positions included, from the first day of the record.
One record from one start date can be lucky or unlucky, so the backtest card on each portfolio adds the typical biggest drop across every monthly start date since 2018. For the Cycle Trader that typical figure is 37.5%, against 75.5% for holding BTC and ETH. 2026's 8.7% was a good year, not the norm.
On setup track records
Setup cards show max drawdown at 1%, 2% and 5% risk per trade. That's the biggest fall an account would have taken if it risked that share of its balance on every trade in the backtest, net of fees. It's the same set of trades sized three ways, so the drawdown grows with the risk.
The A to D grade on each setup uses the 2% figure, and anything with a drawdown of 55% or more at that risk gets a D, whatever its other numbers. The full method is on our setup performance methodology page.
A setup with a strong average result per trade can still have long losing streaks. The average tells you where the record ends up. The drawdown tells you how rough the road there was.
What's a good drawdown?
There's no single number that works for everyone. Two checks help more than any rule of thumb:
- Compare it with holding the same coins over the same dates. If a strategy fell as far as simply holding, it didn't protect you from anything. Our guide to the buy and hold comparison covers how to do this fairly.
- Compare it with what you can sit through. If you'd sell after a 30% fall, a strategy whose typical biggest drop is 40% will have you selling at the worst moment.
FAQ
Educational analysis, not financial advice. Paper trading results are simulated. Backtests are tests on past prices. Past performance does not predict future results.