What is max drawdown?

Max drawdown is the largest peak-to-trough decline over a period — the pain metric that total return alone hides.

Why drawdown is the pain metric that returns alone hide

A strategy or ticker can post a healthy total return over a year and still have put a holder through a brutal -40% stretch along the way — the ending number says nothing about what it felt like to hold through the middle. Drawdown captures exactly that worst-case experience, independent of where the price eventually recovered to.

Live example: AAPL's trailing 1-year max drawdown is -14.0%. See the full AAPL forecast for the current risk metrics this sits alongside.

Drawdown alongside Sharpe and Kelly sizing

Max drawdown and the Sharpe ratio answer related but distinct questions: Sharpe grades the average risk-adjusted return over the whole window, while max drawdown isolates the single worst stretch inside it. Checking max drawdown directly before entering a position is the fastest way to gut-check "could I actually hold through this ticker's worst historical stretch?"

Frequently asked questions

Why does a 50% drawdown need a 100% gain to recover?

Recovery math is asymmetric: losing half your position's value means the remaining half must double just to get back to the starting point.

Is a good total return enough on its own?

No — a strategy can post a healthy total return while still having put a holder through a severe drawdown along the way; the ending number alone hides that experience.

How does max drawdown affect position sizing?

A ticker with a deeper historical drawdown needs a smaller position for the same dollar risk budget than one with a shallower drawdown history.