Why max drawdown matters more than net profit

Why a futures strategy's max drawdown tells you more than its net profit, how to read net profit ÷ drawdown, and what Stacked Edge's own backtests show when drawdown moves.

Net profit is the number everyone looks at first. It is also the number least likely to help you decide whether you can actually trade a strategy. Maximum drawdown, the largest fall from an equity peak to a later low, tells you what you would have had to sit through to get that profit. If you cannot survive the drawdown, you never see the profit. This guide explains why, using the drawdown figures we publish on our own backtests.

Education only, not financial advice. Trading futures risks loss. Every Stacked Edge result mentioned here is a backtest, hypothetical, with inherent limitations. There are no live or forward results.

Net profit answers the wrong question

Net profit tells you how much a strategy made over the whole test, from the first trade to the last. It hides three things:

• The path. Two strategies can both make $40,000. One rises steadily; the other falls $12,000 first and recovers late. Most traders would abandon the second one near its low.
• The size needed. A large net profit on one contract can come with a drawdown that is far too large for the account you actually have.
• The timing. Profit concentrated in one strong year looks the same as profit spread over two in a single total.

Max drawdown answers the question that matters before you start: how much pain is required, and can I afford it?

Two strategies with similar profit

From our published backtests (TradingView Strategy Tester, 2024-09-23 to 2026-09-23, one full-size contract, 4 ticks slippage per order and $2.50 commission per side; all backtest, hypothetical):

Results shown are hypothetical (backtested), not actual trading, and have inherent limitations. Hypothetical performance disclosure →

Net profit is almost identical: a $310 difference. But the Connors drawdown was about $3,500 deeper, which means you would have needed roughly 42% more cushion to sit through it on the same size. On a small or prop-firm account, that difference decides whether you can trade the strategy at all, while the net profit figure says nothing about it.

Net profit ÷ max drawdown: a better first filter

Dividing net profit by max drawdown gives a simple ratio: how many "worst drawdowns" of profit the strategy earned over the test. A ratio of 3 means it made three times its worst fall. Our pass bar asks for about 3× or more over the two-year window, alongside profit factor at least 1.30, at least 30 trades and max drawdown no more than $15,000 per contract.

The ratio is not magic. It is still computed on past, in-sample data, and it is sensitive to small samples. But it puts the cost and the reward in the same sentence, which net profit alone never does.

Drawdown moves faster than profit when things go wrong

This is the most important practical lesson, and our own weekly re-tests show it clearly.

NQ Connors RSI. At baseline, Connors showed net ÷ max DD of 3.05×. When the test was extended to 2026-10-16, five new trades lost $12,000 between them (four were losers). The ratio fell to 1.98×, below our bar, and Connors failed the re-test and was removed from our NQ Stack (backtest, hypothetical). Five trades out of nearly sixty changed the headline by about a third.

NQ DPO 15m. Its baseline max drawdown was $13,248 on a net profit of $68,300, a ratio of 5.16×, one of the highest on the NQ list. On the extended re-test, all seven new trades lost (−$9,395) and max drawdown rose to $16,862, over our $15,000 cap. It failed and was removed from the All-Instrument set. Our longer 2019–2026 check showed a max drawdown of $21,275 and a profit factor of only 1.29 (backtest, hypothetical).

The previous NQ combined set. Our earlier NQ set (Connors, then Supertrend, then half-size VZO, one position at a time) failed the $15,000 drawdown cap at $15,452 on the extended data, so it was replaced and the NQ pack and subscription were paused.

In each case the net profit still looked fine. It was the drawdown that broke the rule.

Why drawdown deserves more weight than profit

1. Survival comes first. A strategy with a great total but a drawdown larger than your loss limit will end your account or your prop evaluation before the good months arrive.
2. Drawdowns grow with more data. The worst stretch so far is, by definition, only the worst so far. Every additional month is another chance for a deeper one, as the DPO example shows.
3. In-sample selection flatters both numbers, but drawdown is the one you live through. Strategies picked on the same data they are measured on will usually look better than they trade. Expect live drawdowns to be larger and live profits smaller.
4. Recovery is asymmetric. A 20% loss needs a 25% gain to get back to even; a 50% loss needs 100%. Deep drawdowns are disproportionately hard to come back from.
5. Behaviour. People abandon strategies near their lows. A shallower drawdown makes it more likely you will still be following the rules when the strategy recovers, if it does.

A note on how drawdown is measured

Not all drawdown figures are the same, and comparing different kinds is a common error. On our pages, the per-strategy max drawdown is TradingView's headline figure, which includes intrabar moves. Combined-set and equity-curve drawdowns are computed from closed trades, so they are smaller by construction and not directly comparable. For example, NQ Supertrend Flip's headline max DD is $8,238, while its closed-trade drawdown from the saved trade list is $6,675 (backtest, hypothetical). Whenever you compare strategies, check which kind of drawdown you are looking at.

Practical checklist

1. Find the max drawdown before you look at profit. If a report doesn't show it, treat the report as marketing.
2. Compare it to your real loss limit. For a prop account, use the firm's max loss or trailing drawdown, not the balance.
3. Check net ÷ max DD. Below about 3 over a two-year window is thin; above it is still only in-sample evidence.
4. Check trade count. Under about 100 trades, a few losers can move the ratio a lot.
5. Check the year split. If almost all profit came in one year, the drawdown in the weak year matters more than the total.
6. Add a margin. Plan for a drawdown at least 1.5 to 2 times the tested figure. That is a rule of thumb, not a guarantee.
7. Re-check regularly. A strategy that passes today may fail next week. That is what weekly validation is for, and it is a process, not a guarantee.

The honest caveat from our own data

Every figure here comes from one two-year window in a strongly rising market (NQ from about 20,200 to about 31,300), using fills at the close of the signal bar with 4 ticks of slippage. All strategies were selected on the same data they are scored on, robustness checks have not been completed, and there is no live track record. The drawdowns in this article should be read as optimistic. The full list, with every caveat, is on our performance page, and each week's changes are in the weekly report and the validation log.

Related reading

• How much can you lose on one NQ, ES or GC contract?
• Position sizing and the calculator
• What a backtest does and doesn't tell you
• The NQ Stack page and its caveats

Education only, not financial advice. Trading futures risks loss. All results are hypothetical backtests with inherent limitations; they do not reflect actual trading and were designed with hindsight. Past performance does not guarantee future results. Stacked Edge is not a registered investment advisor or commodity trading advisor.