Risk and psychology
Drawdown
Definition
The fall from the account's highest value to its lowest point before a new high, usually given in percent.
Example
Say an account grows from $10,000 to a peak of $12,500, falls back to $10,000, then climbs to a new high of $13,000. The drawdown is $2,500 from the peak, or 20%, even though the account never dropped below its starting balance. Recovering from a 20% drawdown takes a 25% gain, because the climb starts from the lower base.
Hypothetical numbers, for illustration only.
Also defined in
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