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 27.4% maximum drawdown over a January-to-August 2026 in-sample period and 13.2% 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.

How far gold itself has fallen from its peaks, and how long it took to get back, is measured in every gold price crash since 1971.