Max Drawdown
Largest peak-to-trough portfolio decline
What is Max Drawdown?
Max Drawdown The largest peak-to-trough decline in portfolio value over a specific period. Expressed as a percentage from the highest point to the lowest point before a new high is reached. Max drawdown is critical for evaluating options strategies because it shows the worst-case experienced loss, which can be psychologically and financially devastating.
Complete Definition
The largest peak-to-trough decline in portfolio value over a specific period. Expressed as a percentage from the highest point to the lowest point before a new high is reached. Max drawdown is critical for evaluating options strategies because it shows the worst-case experienced loss, which can be psychologically and financially devastating.
Example
Your portfolio peaked at $100,000 and dropped to $70,000 before recovering. Max drawdown = 30%.
Related Terms
Want to Learn More?
Explore our educational resources and analytics tools to deepen your understanding.