Maximum drawdown refers to the largest dip an investment or valued-asset took after reaching a certain value, typically its peak value. This number is measured as a percentage.
A good maximum drawdown is anything that is less than 50%, or depending on your specific situation. There is no single number that is good or bad but there are general guidelines to follow and try to align your results with.
Maximum drawdown can be no more than 100% since you can only lose your entire position and value. This may be untrue in very specific situations, such as one where margin is used to purchase a position and you lose the entire position and need to pay back the margin making it more than 100%.
Yes, maximum drawdown is always going to be negative since the measured value is always going to be based on a decline in value.
Absolute drawdown refers to the actual value difference, while maximum drawdown is a percentage. For example, your account peaked at 50,000 but dropped to 25,000 at one point after that. Your absolute drawdown is 25,000 and your maximum drawdown is 50%.
Create Date: October 7, 2024
Last Modified Date: October 7, 2024
