Maximum Drawdown
Version 1.0.0 · Updated 2026-07-30
CORE DEFINITION
The maximum decline from peak to trough, measuring the maximum loss that an investment or strategy may suffer.
SCAFFOLDING EFFECT
Reduce cognitive load
A true measure of risk. Average returns may look good, but maximum drawdown tells you "how painful it gets at the worst time"—can you bear it?
Anchor fast decisions
A financial risk management metric: the maximum decline of an asset's net value from a previous high point to its subsequent low point. The mechanism is the maximum relative loss from peak to trough.
MINIMUM ACTION
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Source support: Explicit
- en.wikipedia.orghttps://en.wikipedia.org/wiki/Drawdown_%28economics%29verified
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