What is maximum drawdown? Measuring the fall from a portfolio peak

Maximum drawdown measures the deepest fall in portfolio value from its previous highest level during the period being examined. The decline from that peak is drawdown; its largest magnitude is maximum drawdown. Its reference point differs from a loss measured against the initial investment.

A portfolio can finish with a profit while experiencing a large decline along the way. Read the final value alongside the falls that an investor would have had to endure. See returns and drawdowns for the foundations.

This is an artificial teaching example, not an investment result. Suppose portfolio value moves through 100, 120, 90 and 110. The running peaks are 100, 120, 120 and 120. At 90, the portfolio is 30 below its earlier peak of 120.

Drawdown is calculated as current value divided by the running peak, minus one. Here, 90 ÷ 120 − 1 = −25%. The fall from the initial 100 to 90 is 10%, but that is not maximum drawdown. Maximum drawdown has a magnitude of 25% in this example, or −25% when displayed with a negative sign.

At the final value of 110, drawdown from 120 is about −8.33%. The portfolio has recovered from its low of 90, but has not regained its previous peak. This short sequence therefore cannot establish a completed recovery time. Nor can a sequence without dates establish a number of trading days.

Two paths with the same maximum decline may recover quickly or remain below their peaks for a long time. Read the date of the trough, the preceding peak and the eventual recovery separately. If recovery has not occurred by the end of the period, record that status without supplying a future recovery date.

Total return in the example is 110 ÷ 100 − 1 = 10%. A total return of +10% and a maximum drawdown of 25% are consistent: one compares the starting and ending values, while the other compares a peak with a subsequent low.

Maximum drawdown alone is also insufficient. A short observation window may simply not have encountered a major decline yet. Avoid ranking reports with different periods or price bases by this number alone. Other measures, including the Sharpe ratio, also require checking their inputs and calculation conventions.

The public KabuForge GUI course separates the portfolio-value chart from the underwater drawdown chart. Zero on the underwater chart represents a running peak; downward excursions show declines from that peak. Distinguish the deepest point from the point where the line returns to zero.

First check the report's input, date range, price basis and included fees, then read its values and units. Similar-looking charts do not establish that two reports are identical. See reading reports and checking returns, risk and trading for the full sequence.

The workflow and display sources are the public GUI research course and public evidence summary. Reviewed October 6, 2026. The images record a GUI run from public-candidate source; they do not establish installed-distribution acceptance.

Reference results are research-only, with historical information availability unverified. Do not infer future profits from teaching examples or reference results; check their assumptions and limitations. Read the disclaimer.

Explore the risk and return learning path

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