Drawdown

The drop from a peak in account value to a subsequent low.

1 min

Why it matters

Drawdown predicts behavior under stress and determines survivability.

Decision use: treat this term as a risk input. If you can’t observe it, you can’t size for it.

Common trap

Focusing only on returns and ignoring drawdown depth and duration.

Example

A 30% drawdown requires ~43% gain to recover.

Operational cue: if you can’t point to it on the chart, in the DOM, or in your broker logs, treat it as a story and trade smaller.

Notes

Drawdown is the real cost of strategy variance.

If you see this repeatedly, you are in a different regime than your model assumes.
Regime change usually means position size change.
When in doubt: trade smaller, or don’t trade.