An equity curve peaking at 12,800 and falling to 9,600 is a 25% drawdown — and getting back needs a 33.3% gain, not 25%. Losses and recoveries are not symmetric.
Currency and number format for
Largest fall
—
Largest fall—
From a peak of—
To a low of—
You lost—
To recover it you needed a rise of—
Right now—
How this was worked out
Indicative result. Nothing here is investment advice. Past drawdowns say nothing about the size of the next one.
Maximum drawdown is the worst peak-to-trough fall in a series. It measures the pain of holding rather than the return of holding, which is why it is the figure that decides whether a strategy is one you can actually stay in.
How to work it out by hand
Track the highest value seen so far as you move through the series
At each point, measure the fall from that running peak
The largest of those falls is the maximum drawdown
For the recovery needed, divide the loss by what is left
What is worth knowing
The asymmetry is the whole lesson: down 25% needs up 33% to get level, down 50% needs up 100%, and down 80% needs up 400%. That is why avoiding deep drawdowns matters more than capturing the last part of a rally. A drawdown figure also has to be read with its duration — the fall in 2008 took months, but recovering it took years, and time spent underwater is what actually makes people abandon a plan. Two strategies with the same annual return and drawdowns of 15% and 45% are not remotely the same product.
Frequently asked questions
Why is the recovery bigger than the fall?
Because it is measured on a smaller base. Losing 25% of 100 leaves 75, and getting from 75 back to 100 is a 33% rise.
What is an acceptable drawdown?
It depends on what you can actually sit through. A broad equity index has fallen more than 50% twice in the last twenty-five years.
Does a low historical drawdown mean low risk?
No. It means the worst has not happened yet in that sample. Strategies that sell volatility look superb until they do not.
Should I look at duration too?
Yes, and it is often more important. A 20% fall that recovers in a month is a very different experience from one that takes four years.
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