Plain-English definitions, reviewed by an independent investor
Drawdown
Drawdown is the peak-to-trough loss from a high point to the next low, a blunt measure of pain.
Drawdown is the peak-to-trough loss from a high point to the next low, a blunt measure of pain.
Drawdown = (Peak − Trough) ÷ Peak × 100%
Why it matters
It tells you the worst real-life loss you would have endured, not just averages.
Common confusion
Recovery is asymmetric: a 50% drop needs a 100% gain just to break even.
Frequently Asked Questions
Why fear drawdown?
Large drops test nerves and can force selling at the worst time.
Max drawdown?
The biggest such drop in a period; a key risk number for any strategy.