What is drawdown in trading?

What it means

Drawdown measures pain rather than performance. Two systems can return the same amount over a year while one drifts down 8% at worst and the other falls 40% before recovering, and no reasonable person would consider those equivalent.

Why it matters

The recovery arithmetic is asymmetric and unforgiving. A 20% drawdown requires a 25% gain to recover, 50% requires 100%, and 80% requires 400%. This is why controlling drawdown matters more than maximising return — the deeper the hole, the less plausible the climb out.

What this changes in practice

Our own validated figures are 21.2% maximum drawdown over a January-to-July 2026 in-sample period and 20.5% over an August-to-December 2025 out-of-sample one. We publish both because a single-period drawdown figure is close to meaningless, and because roughly one in five is a number a buyer deserves to see before purchase rather than after — the risk disclosure states it too.