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What it calculates: Maximum Drawdown, Peak Before Trough, Trough Value, Gain to Recover.
Updated 5 June 2026 · Transparent assumptions
The largest peak-to-trough decline, wherever in the series it happened
The series runs 10,000, 12,000, 11,000, 9,000, 9,500, 13,000, 8,000, 14,000. The worst decline is not from the opening value but from the 13,000 peak down to 8,000 — a fall of 38.46%. Drawdown is always measured from the highest point reached so far, which is why a series can end higher than it started and still contain a severe drawdown.
That definition matches the experience it is meant to describe. An investor who joined at the 13,000 peak watched 38% of their capital disappear; the fact that the series later reached 14,000 does not change what that period felt like, and drawdown is the measure that records it.
Losses and gains are not symmetric, and the gap widens fast
Falling from 13,000 to 8,000 is a 38.46% loss. Getting back to 13,000 from 8,000 requires a 62.5% gain, because the gain is computed on the smaller base. The asymmetry accelerates: a 50% loss needs 100% to recover, and a 90% loss needs 900%.
This is the arithmetic behind every argument for limiting downside. It also explains why a strategy with modest returns and shallow drawdowns can beat a higher-returning one that suffers deep ones — the compounding never recovers the ground lost, and the recovery figure is the honest statement of how much ground that is.
How long the recovery took, which is often what ends the strategy
Maximum drawdown measures depth only. Two strategies can share a 38% drawdown where one recovered in six months and the other took six years — the same figure, entirely different outcomes for anyone who needed the money or had to explain it to a committee.
The usual companions are drawdown duration, the time from peak to trough, and time to recovery, from trough back to the previous peak. Historical equity market drawdowns have taken anywhere from months to well over a decade to recover, and that dispersion is a large part of why drawdown depth alone is an incomplete risk measure.
Monthly values hide drawdowns that daily values reveal
Drawdown is computed from whatever points you supply, so a series of month-end values cannot see a fall and recovery that happened within a month. Measured on daily data the same portfolio will almost always show a larger maximum drawdown than on monthly data, and the gap is widest for volatile strategies.
It is also a single historical worst case, and by construction the worst one in the sample. A longer history will usually contain a deeper drawdown than a shorter one, so comparing the figure across strategies with different track record lengths is misleading. What it can never tell you is whether a worse one is still to come.
Sources & References
Figures on this page are checked against primary, authoritative sources. Links open in a new tab.
Returns are assumptions, not guarantees. Actual results may vary because of market performance, taxes, fees, inflation, and timing. This is an educational projection, not investment advice.
Published the calculator with its formula, worked example, assumptions, limitations and a bespoke guide, and added an automated formula test suite covering it.
Tested that drawdown is measured from the running peak rather than the opening value, and that the recovery figure always exceeds the drawdown it reverses.
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