Maximum drawdown
What is maximum drawdown?
Maximum drawdown is the largest peak-to-trough fall an investment has suffered over a period. It measures the worst stretch an investor would have had to sit through.
Drawdown = (Trough value − Peak value) ÷ Peak value
- Written by
- Suggested Investments Research Team
- Content type
- Reference definition
- Published
- 2026-09-13
- Last reviewed
- 2026-09-13
Why it matters more than volatility for most people
Volatility describes typical fluctuation. Drawdown describes the moment people actually sell. A holding you cannot tolerate at its worst point is the wrong size for you, regardless of its research quality.
Recovery is a separate question
A 50% fall requires a 100% gain to get back to level. Depth and duration of recovery are both part of the picture.
A worked example
A stock that fell from $100 to $58 before recovering had a 42% maximum drawdown for that period.
The mistake people make
Reading a small historical drawdown as a promise about the future. It describes the past window only.
How we use it
Historical drawdown behaviour is part of our Risk Intelligence lens, which is 30% of the Suggested Investment Score — the single largest component.
Related terms
Sources and methodology
- Intelligent Accumulation methodology — Suggested InvestmentsPrimary source
- Investor.gov investor education — U.S. Securities and Exchange CommissionPrimary source
Keep reading
- Investing Glossary
Every investing term we use, defined once and in plain English — from compounding and drawdown to Form 13F and share dilution.
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Educational information only. Nothing here is a recommendation to buy or sell any investment, and no research measurement removes the risk of loss.