Capital Preservation & Defense

The largest peak-to-trough decline in your portfolio equity over the measurement period, expressed as a percentage. It represents the worst-case loss an investor would have experienced if they bought at the highest point and held through the lowest point before recovery.

How to use it: This is one of the most important risk metrics for position sizing and strategy limits. Many experienced traders set their maximum tolerable drawdown before they start trading a strategy — and if Max Drawdown exceeds that threshold in live trading, it triggers a strategy review or reduction in size. A large drawdown isn't just a financial problem; it tests psychological endurance. If your Max Drawdown would cause you to abandon the strategy, your position sizing is too aggressive.

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