Drawdown
Drawdown is the peak-to-trough decline in an investment or trading account before a new high is reached. It measures the maximum loss experienced during a specific period. Max drawdown is a key risk metric for evaluating trading strategies.
Understanding the Concept
• Expressed as a percentage from the peak • Lower max drawdown indicates more consistent performance • Recovery time matters: 50% loss requires 100% gain to break even • Important for position sizing and risk management
Real-World Example
Your $100,000 portfolio grows to $150,000, then drops to $90,000 before recovering to $180,000. The max drawdown was 40% ($150K to $90K). Even though you ended with 80% total gains, you experienced a 40% drawdown that required a 67% recovery just to get back to your previous high.
How Strykr Helps
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