Explainer
Max Drawdown Explained
Max drawdown shows the biggest drop from a high point to a later low point inside your chosen date range. It helps you see the worst pain on the path, not what happens next.
Published: December 26, 2025 · Updated: December 26, 2025 · By FinToolSuite Editorial
Disclaimer
- Educational purposes only, not financial advice.
- Examples are illustrative; results depend on your inputs and assumptions.
- Past performance is not a reliable indicator of future results; market returns can be negative.
- See the Privacy Policy for data handling details.
Open the Investment History Checker
Run a window and see max drawdown alongside total return, CAGR, and the yearly table.
Quick answer
- Max drawdown is the worst peak to trough decline in the window.
- It helps you see the worst pain the chart went through.
- It does not tell you what happens next.
What max drawdown measures
- It finds a peak in your window.
- It measures the percentage drop to the lowest point before a new peak.
- It reports the worst drop across the whole window.
Simple formula
Drawdown (%) = ((Trough − Peak) ÷ Peak) × 100
Max drawdown = most negative drawdown (%) over the periodSome tools show drawdown as a negative percent, others as a positive magnitude—check the sign.
Worked example (illustrative)
Price reaches 100 (peak), then falls to 60 (trough). Drawdown is (60 − 100) ÷ 100 = −40%. If it later recovers to 90, then 110, the max drawdown for that window stays at −40% even though a new high was made.
Max drawdown vs a one year loss
A one year loss looks only at calendar year start and end. A drawdown can happen mid year and be deeper than the year-end number. For example, a year might finish flat but still include a steep mid-year drop.
Use drawdown with other metrics
| Metric | What it tells you | What it can hide |
|---|---|---|
| Total return | Overall change | Path and stress |
| CAGR | Smooth yearly growth | Volatility |
| Max drawdown | Worst decline | How often declines happen |
| Yearly table | Which years were big | Intra-year swings |
Learn more on balancing return and drawdown in return vs drawdown and on CAGR in CAGR explained.
Safe interpretation notes
- Drawdown depends on the chosen start and end dates.
- Longer windows often reveal larger drawdowns.
- Two tickers can have similar returns but very different drawdowns.
- Drawdown is not a prediction.
See balance tips in return vs drawdown.
Practical checklist
- Run at least two different date windows.
- Check drawdown alongside CAGR.
- Scan yearly returns to see recovery years.
- Do not assume past drawdowns will repeat.
FAQ preview
Can max drawdown be positive?
No. It measures the biggest drop; it is zero or negative.
Why is my drawdown large even if the return is positive?
Your path may have had a sharp fall before recovery; drawdown captures that worst point.
Does the drawdown include dividends?
Drawdown is usually based on price. Check whether dividends are included for your data source.
Why does drawdown change when I change dates?
Different start and end dates can expose different peaks and troughs.
Where do I see the drawdown in the tool?
Run a window in the Investment History Checker and read max drawdown next to total return and CAGR.
Is drawdown a forecast?
No. It describes the worst drop in the chosen history only.
Check drawdown on your own window
Run two windows, compare drawdown with total return and CAGR, and save a snapshot for your notes.