RiskPicksWhat is Max Drawdown?
Maximum drawdown (MDD) measures the largest percentage decline from a peak to a trough in your account value before a new peak is reached. It's the worst loss you experienced over a given period.
Why it matters
- Recovery math is brutal: a 50% drawdown requires a 100% gain to recover
- Psychological impact: large drawdowns cause fear, revenge trading, and strategy abandonment
- Strategy evaluation: max drawdown is often more important than total return
Drawdown recovery table
- 10% loss → need 11% gain to recover
- 25% loss → need 33% gain to recover
- 50% loss → need 100% gain to recover
- 75% loss → need 300% gain to recover