What is Maximum Drawdown?
The largest peak-to-trough drop an asset or portfolio has experienced over a period.
Educational — not investment advice
Maximum drawdown measures the worst decline from a high point to the following low, before a new high is reached. If a portfolio went from $100k to $70k before recovering, its max drawdown over that stretch was 30%.
It is arguably the most honest of the common risk numbers because it describes something that actually happened, in money terms you can feel — not a statistical abstraction.
The trap most people miss
Max drawdown is the worst drop that has happened so far — not a floor. Reading "it only ever fell 30%" as a guarantee is the classic mistake. Tomorrow is always allowed to be worse.
Frequently asked about Maximum Drawdown
Is max drawdown the same as volatility?
No. Volatility measures how much prices bounce around on average; max drawdown measures the single worst sustained fall.
How do I use it?
As a gut check on whether you could have psychologically and financially held through the worst historical stretch — and a reminder that the real worst case is unknown.
Related terms
Guides that use Maximum Drawdown
See your own portfolio’s max drawdown
Add what you hold and Tradune charts the largest peak-to-trough decline of your time-weighted returns, alongside SPY’s over the same dates.
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This definition is for educational purposes only and is not investment, tax, or financial advice. Concepts are explained in general terms; how they apply to your situation can differ. Always do your own research.