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Drawdown

Drawdown is the decline from a prior portfolio or security peak to a later trough, usually expressed as a percentage.

By Betta Signals Research Desk · Reviewed October 24, 2026

Plain-English definition: Drawdown is the decline from a prior portfolio or security peak to a later trough, usually expressed as a percentage.[1]

How the term is used

Maximum drawdown reports the worst peak-to-trough loss in a chosen sample. It captures the depth of a historical loss but not necessarily how long the decline or recovery lasted.[1]

What to check before relying on it

Results depend on the sample start, valuation frequency, currency, and return series. A monthly series can miss a sharp intramonth decline that appears in daily data.

Example

A fall from $100 to $70 is a 30% drawdown. Recovering from $70 to $100 then requires a gain of about 42.9%, not 30%.

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Research last reviewed: October 24, 2026. This definition is educational and does not evaluate a particular security.

Sources

  1. CFA Institute Research: Performance Drawdowns in Asset Management — drawdown measurement, depth, duration, recovery, and performance-analysis limits. Accessed October 24, 2026.