Introduction

In our previous article, we explained why Maximum Drawdown is one of the most important risk metrics for evaluating a sports betting strategy.

While ROI (Return on Investment) tells you how profitable a strategy has been, Maximum Drawdown measures something equally important: the largest temporary decline your bankroll experienced before reaching a new all-time high.

Understanding this metric is essential for anyone who approaches sports betting as a long-term investment rather than simple entertainment.

The good news is that Maximum Drawdown is relatively easy to calculate.

The challenge is knowing exactly which values to use, how to interpret the result, and which common mistakes to avoid.

In this guide, you'll learn how to calculate Maximum Drawdown step by step, using practical examples that you can apply to your own betting strategies.

Understanding the Calculation

The principle behind Maximum Drawdown is straightforward.

You simply need to:

1. Identify the highest value your bankroll reaches.
2. Find the lowest point that follows before a new high is achieved.
3. Measure the decline between those two values.
4. Repeat the process throughout the bankroll history.
5. Keep the largest decline.

That largest decline is your Maximum Drawdown.

Unlike ROI, which measures profitability, Maximum Drawdown measures the worst temporary loss an investor would have experienced while following the strategy.

The Maximum Drawdown Formula

The formula is simple.

Maximum Drawdown (%)

For example:

Peak bankroll:

145 units

Lowest bankroll before reaching a new high:

127 units

Calculation:

The Maximum Drawdown is therefore 12.41%.

Example 1: A Simple Bankroll

Consider the following bankroll progression.

The bankroll first reaches a peak of 118 units.

It then falls to 107 units before eventually recovering to a new high of 120 units.

The calculation becomes:

(118 − 107) ÷ 118 = 9.32%

Therefore, the Maximum Drawdown for this period is 9.32%.

Once the bankroll reaches 120 units, a new measurement cycle begins.

Example 2: Multiple Drawdowns

Now consider a longer betting history.

This bankroll experiences three different drawdowns.

Although there are several declines, only the largest one matters.

The Maximum Drawdown is therefore 12.00%.

Should You Use Units or Percentages?

Maximum Drawdown can be expressed in two ways:

• Units (e.g. –18 units)
• Percentage (e.g. –12.4%)

Professional investors almost always prefer percentages.

Why?

Because percentages allow fair comparisons between strategies with completely different bankroll sizes.

A loss of 20 units means something very different on a 100-unit bankroll than on a 5,000-unit bankroll.

Percentages standardise the measurement.

The Most Common Mistakes

Confusing Drawdown with a Losing Streak

A strategy can lose ten bets in a row without producing its largest drawdown.

The impact depends on the odds, stake sizing and previous bankroll growth.

Maximum Drawdown measures capital decline, not the number of consecutive losses.

Measuring from the Initial Bankroll

One of the most common mistakes is calculating drawdown from the original deposit.

This is incorrect.

Maximum Drawdown is always measured from the highest historical bankroll to the lowest point that follows before a new high is reached.

Ignoring New Equity Highs

Each time the bankroll reaches a new all-time high, the calculation starts again.

Every new peak becomes the reference point for the next drawdown.

Looking Only at Losing Bets

Drawdown is based on the entire equity curve, not just losing bets.

Winning bets can reduce an existing drawdown without necessarily creating a new bankroll high.

Can Maximum Drawdown Be Calculated Automatically?

Absolutely.

Most professional portfolio analysis software calculates Maximum Drawdown automatically.

On Bet2invest, Maximum Drawdown is calculated directly from a tipster's complete betting history.

This allows investors to compare strategies not only by profitability but also by their historical risk profile.

Why Is This Calculation So Important?

Maximum Drawdown answers one of the most important questions an investor can ask:

What is the worst period this strategy has ever experienced?

That information is often more valuable than total profit.

Consider these two strategies:

• Strategy A earns +400 units but regularly experiences 150-unit drawdowns.
• Strategy B earns +350 units with a maximum drawdown of only 40 units.

Many investors would prefer Strategy B because it offers a much smoother investment journey, even if the total profit is slightly lower.

Risk-adjusted performance often matters more than raw returns.

Key Takeaways

• Maximum Drawdown measures the largest decline from a historical peak to the following trough.
• It is usually expressed as a percentage.
• It enables objective comparisons between betting strategies.
• It should never be confused with a losing streak.
• It is one of the most widely used risk metrics in professional investing and sports betting analysis.

Frequently Asked Questions

Is there more than one way to calculate Maximum Drawdown?

The definition is universal. However, different software may calculate drawdowns using different time intervals (bet-by-bet, daily, weekly or monthly), which can produce slightly different results.

Should Maximum Drawdown be expressed in units or percentages?

Both are valid, but percentages are generally preferred because they allow meaningful comparisons across different bankroll sizes.

Can a strategy have multiple drawdowns?

Yes. Every strategy experiences multiple drawdowns over time. The Maximum Drawdown is simply the largest one.

Why do professional investors focus on Maximum Drawdown rather than losing streaks?

Because it measures the actual financial impact of losses on the bankroll rather than simply counting consecutive losing bets.

Conclusion

Calculating Maximum Drawdown is much easier than many bettors initially think.

The real challenge lies in interpreting what the number tells you about a strategy's historical risk.

Profitability alone is never enough.

Understanding how much temporary pain an investor must endure to achieve that return is what separates professional strategy analysis from simply looking at ROI.

In the next article, we'll explain why two betting strategies with exactly the same ROI can have completely different risk profiles, and why Maximum Drawdown often provides more valuable insights than ROI when evaluating long-term sports betting performance.