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Risk ManagementM
Maximum Drawdown
The largest peak-to-trough decline in the value of a portfolio or trading account before a new peak is reached. It measures the worst-case scenario an investor would have experienced and is a key metric for evaluating risk-adjusted performance of trading strategies.
Example
“A trading strategy had a maximum drawdown of 25%, meaning at its worst point, the account dropped from a peak of $100,000 to $75,000 before eventually recovering.”