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.
Max drawdown = largest (peak - trough) / peak across the series
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.
Frequently Asked Questions
What is maximum drawdown?
Maximum drawdown is the largest drop from a peak value to a later trough, before a new peak is reached, expressed as a percentage of the peak. It captures the worst loss an investor would have experienced over the period if they had bought at the high.
How do I calculate maximum drawdown?
Track the running highest value as you move through the series. At each point, measure the fall from that high as (peak - value) / peak. The largest of those falls is the maximum drawdown.
Why can drawdown be larger than my total loss?
Total change compares only the first and last values, while drawdown finds the deepest dip in between. A series can end higher than it started yet still have suffered a severe drawdown along the way.
What gain do I need to recover from a drawdown?
Recovering takes a larger percentage gain than the percentage you lost, because the gain is measured from the smaller trough. A 38.46% drawdown, for example, requires roughly a 62.5% rise to return to the prior peak.
Is a smaller maximum drawdown always better?
A smaller drawdown means a gentler worst-case fall, which many investors prefer. But it should be read alongside returns and the length of the decline, since two strategies with the same drawdown can behave very differently.
Does this measure how long the drawdown lasted?
No. This calculator reports the depth of the worst fall, not its duration. A separate measure, sometimes called time-to-recovery, looks at how many periods it took to climb back to the peak.
Can I use period-end prices instead of portfolio values?
Yes. Any series of comparable values in the same currency works, whether portfolio balances, fund prices, or index levels. Just enter them in chronological order.
Sources & References
Figures on this page are checked against primary, authoritative sources. Links open in a new tab.
Values are period-end snapshots entered in order; the calculator does not infer intra-period highs or lows between them.
Drawdown is measured on the values you supply, so a coarser series can understate the true worst loss.
All values share the same currency; results are for general and educational use only.
Where it stops
Up to eight values are supported here; longer or higher-frequency histories will reveal deeper drawdowns.
Drawdown describes past pain in one series and is not a forecast of future losses.
It ignores how long the decline and recovery took; a shallow but lengthy drawdown can be harder to endure than a deep, brief one.
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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.
Frequently Asked Questions now show on the page: 7 answers, checked in a page-by-page audit.
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