Published 2026-10-14
Drawdown
Drawdown is the fall from a peak to a later trough, usually expressed as a percentage. Maximum drawdown is the worst such fall — and it is the number that tells you whether you could actually hold a strategy.
What it is
Drawdown is the fall from a peak to a later trough, usually expressed as a percentage. Maximum drawdown is the worst such fall over a period.
Why it matters more than return
A return that looks attractive at the end of a backtest can hide a fall in the middle that no one would have sat through.
Maximum drawdown is the number that answers a different question: could you have actually held this? A strategy up 40% but down 60% at some point is a strategy most people would have abandoned before the recovery.
How to check
Ask for the drawdown series, not just the final return. Then ask whether the backtest included the costs that make a drawdown worse — the more a strategy trades, the more costs bite exactly when performance is already poor.