Glossary

Drawdown

Drawdown is the percentage decline of an asset from its previous peak to a later low.

Drawdown measures how far a price has fallen from its previous high. The formula is the current price minus the peak price, divided by the peak price. The result is a negative percentage. A drawdown of zero means the price is at a new high.

Analysts use two related terms. Current drawdown is the distance from the last peak right now. Maximum drawdown is the largest peak-to-trough decline in a chosen period. The period matters. A maximum drawdown over one year can differ greatly from one over the full history of an asset.

Drawdown is also asymmetric. A larger fall needs a larger percentage gain to return to the peak. Drawdown describes the past path of the price. It does not predict how long a decline will last or how far it will go. Use it to compare risk across assets and across market cycles.