Drawdown: what it measures and how to read it

A drawdown is the fall from a portfolio’s previous peak to a later low, and the maximum drawdown is the deepest such fall over a period. The tutorials, calculators, modules and guides below show how deep falls were, how long recovery took, and how to compare strategies on them.

11 pages and terms
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4 questions answered

2Guides

Long form answers with worked Indian examples.

Guide, 9 minWhat to do when the stock market crashes: drawdowns, recoveries and a planThe recovery maths, how long falls lasted, and a plan written before the next one.
Guide, 9 minHow to compare two investment strategies: seven checks, worked on two real rulesSeven checks past the headline return, worked on two rules with the same CAGR.

2Learn modules

Free lessons with a quiz and a certificate.

1Calculators

Put your own numbers on the idea.

CalculatorDrawdown and recoveryThe gain needed to recover from a fall and the years it takes at a given return, with the curve, the formula and a worked example.

1Questions answered

One question, one short answer, a dated chart.

QuestionSharpe, max drawdown, Kelly, position sizing and risk of ruin: how do they fit?The Sharpe ratio measures return per unit of volatility, max drawdown measures the worst fall from a peak, and the Kelly fraction sizes a bet from.

1Terminal tutorials

Where the figure sits in the app, in a short video.

Tutorial, 1:22 videoDrawdown shape: what do ulcer, pain and time under water add?Beyond max drawdown: current drawdown, the deepest five falls, time under water, ulcer and pain index, worst 4 weeks and falls deeper than 10 percent.

3Glossary terms

The words, in plain language.

Drawdown: The peak-to-trough decline during a specific period.
Time under water: Time spent below a previous high, waiting to recover.
Ulcer index: One number for how deep and how long the falls below the high were.

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Questions about drawdown

What is a drawdown?

The percentage fall from the highest value reached so far to a later low. A portfolio that goes from 10 lakh to 8 lakh rupees is in a 20 percent drawdown.

What is maximum drawdown?

The deepest drawdown over the whole period measured. Strategy pages quote it with the model as of date.

Why does recovery take longer than the fall?

A fall of 50 percent needs a gain of 100 percent to get back. The drawdown recovery calculator shows the gain and the time needed.

What do ulcer index and time under water add?

They measure how long and how deep the falls were together, not only the single worst point. The tutorial shows them on a strategy.

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