Max drawdown — the number that matters most

Max drawdown = biggest peak-to-trough decline of equity, expressed as a %.

MDD = max over time of (peak - current) / peak

• Total return tells you the destination.
• Drawdown tells you the emotional + margin cost of getting there.
• A strategy with 100% annual return and 60% MDD is unusable — you'll be margin-called, you'll quit, you'll reduce size at the worst moment.
• A strategy with 30% annual return and 12% MDD is sustainable.

A one-number summary: Calmar = annual return / max drawdown.

• Calmar > 1 = decent
• Calmar > 3 = excellent
• Calmar > 5 = suspicious (overfit backtest?)

Given an equity curve, compute max drawdown %.