Drawdown

The peak-to-trough decline in an investment value during a specific period.

Drawdown measures the loss from a portfolio highest point to its lowest before recovery. A 50 percent drawdown requires a 100 percent gain just to break even, which is why avoiding large drawdowns is often more important than maximizing returns. Max drawdown is a key metric for evaluating strategies.

The strategy looked great until a 40% drawdown wiped out two years of gains.