Question 1

What is drawdown in a backtest?

Accepted Answer

Drawdown is a drop from a previous peak in the account balance. Maximum drawdown is the deepest of those drops over the whole test, usually shown as a percentage. It measures the worst losing stretch the strategy put you through.

Question 2

Why does the equity curve matter if I already know the final profit?

Accepted Answer

Because two strategies can finish at the exact same profit while one rose smoothly and the other plunged in the middle. The shape of the ride decides whether a real person could hold the strategy long enough to reach that ending.

Question 3

What does survivability mean for a trading strategy?

Accepted Answer

Survivability is whether you could realistically stay in the strategy through its worst stretch without blowing past a risk limit or quitting. A profitable strategy with a drawdown too deep to stomach is not survivable in practice, so its profit is theoretical.