Maximum Drawdown
The deepest drop in value from a peak to the next trough, in percent.
Maximum drawdown measures the worst historical loss episode: by what percentage value fell from its highest point (peak) to its lowest point before setting a new peak. It is shown as a negative value, e.g. −60%. It is a key measure of a strategy's or portfolio's "pain", it shows how deep a drop you had to sit through. The related "time underwater" tells you how long value stayed below the previous peak. Mind the recovery arithmetic: after a 50% drop you need +100% to get back to the starting point. Drawdown describes the past and depends on the length of collected history, the shorter it is, the less reliable the number. It is an informational measure, not a forecast or a signal.
In plain words
The deepest slide your portfolio took from a top to a bottom. −60% means that at the worst moment value fell by more than half. The deeper it is, the more you have to claw back.
Example
A portfolio rose to $10,000, then fell to $4,000 before recovering, max drawdown = −60%. Getting from $4,000 back to $10,000 needs +150%, which is why deep drawdowns are hard to recover.
Also known as: max drawdown, maksymalne obsunięcie, obsunięcie kapitału, drawdown, максимальна просадка