Drawdown
Also called: drawdown, max drawdown, peak to trough, loss from peak.
Formula
Drawdown = (Peak - Trough) / Peak. Gain needed to recover = Drawdown / (1 - Drawdown).
How it is read
Drawdown matters because recovery is not symmetric. The gain needed to undo a loss is always larger than the loss, and the gap widens fast. A 20% fall needs 25% back. A 33% fall needs 50%. A 50% fall needs a doubling. That arithmetic is why a limit on the largest acceptable loss does more work than any target for gains. It is also why two sequences ending at the same place are not equivalent if one of them went much further down on the way.
What it does not tell you
A drawdown figure is only comparable when the base is stated. That means saying whether it is measured from the starting balance or from the running peak. It also means saying whether capital was added or withdrawn during the period. It is backward-looking, and it depends heavily on the window chosen. A maximum drawdown over one period says nothing about the largest one still to come. And it describes the size of a fall, never its cause.
See it in an experiment
Money and risk recap — What is model value, what is contract amount, and where is the risk boundary?
Related concepts
Drawdown Recovery: Why a 33% Loss Needs About a 49.3% Gain
A loss and the gain that undoes it are not the same size, because the gain is worked out on the smaller amount that is left. Lose 10% and you need 11.1% to get back. Lose 33% and you need about 49.3%. Lose 50% and you need 100%. The curve steepens the whole way. That is arithmetic rather than advice, and it is why the size of the worst loss matters more than the size of the average win.
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