The largest observed peak-to-trough decline over a selected history.
How it works
Maximum drawdown is the largest peak-to-trough percentage decline observed in a selected series. It summarizes the worst historical capital decline during that window.
Example
If the highest earlier value was 120 and the lowest later value before recovery was 84, maximum drawdown was 30%.
Limitations
It is backward-looking, highly dependent on start date and data frequency, and says nothing about losses worse than those already observed.
Evidence LedgerHow this insight was built
Human reviewedThesis being tested
This definition explains Maximum Drawdown accurately, with its practical use and material limitations.
Key assumptions
- The named calculation or convention is stated where definitions vary.
- The example is illustrative and not a forecast or recommendation.
What could invalidate the view
- A different market, instrument, jurisdiction, or methodology may use the term differently.
- The cited authority may revise its guidance or terminology.
- Editorial ownership
- Market Master · reviewed
- Approval state
- Reviewed financial content
- Evidence currency
- Current evidence window
- Source coverage
- 2 documented sources
Sources used for this insight