Drawdown

Drawdown measures how far something has fallen from its most recent high. Unlike volatility, which treats up and down moves symmetrically, drawdown is asymmetric — it only counts the down. That makes it closer to how an investor actually feels risk: a -30% volatility figure is abstract, a -30% drawdown is the account balance.

Two properties matter for reading a drawdown statistic. First, it's path-dependent: a 20% drawdown that recovers in three months is very different from a 20% drawdown that takes three years. Second, the denominator matters — the peak. A "50% drawdown" from a euphoric top is a different thing than a 50% drawdown measured from a cycle average.

Max drawdown is the biggest observed peak-to-trough decline over a chosen window. It's a useful summary statistic for comparing strategies but a weak predictor on its own — every strategy's max drawdown is its worst drawdown so far.