How to read a max drawdown
Take a trader's cumulative profit curve, find the highest point, then find the lowest point that comes after it. The distance between them is the max drawdown: the worst run the trader lived through.
Unlike ratios built on averages, drawdown records a real sequence. A good month somewhere else in the sample cannot smooth it away, which makes it the most durable risk number on a short record.
Why max drawdown matters in prediction markets
Capital in an open position is locked until the market resolves. A deep drawdown is therefore more than a paper loss: it is capital that cannot be redeployed while the drawdown lasts, a second cost the number does not show.
Drawdown also predicts behavior. Traders who have taken a 40% decline once tend to size differently afterwards, so a large historical drawdown next to a recently small position size usually means the strategy changed.
Where 0xinsider uses max drawdown
Read drawdown alongside profit and the grade. Two wallets with similar returns can have taken very different paths: a deeper decline means a larger loss to recover from. The equity curve shows when that decline happened.
