Risk and return · updated October 21, 2026
What is maximum drawdown and how is it calculated
Maximum drawdown shows how much you would have lost, in the worst case, if you had bought the stock exactly at the top and sold at the lowest point after it. It answers the question: how bad could it get?
Maximum drawdown formula
- The peak
- The highest price reached before the fall.
- The lowest price
- The bottom of the fall, before a new recovery.
Worked example
A stock climbs to $200, then falls to $120 before recovering.
To recover from −40%, the price has to rise 67%. On our pages you also see how many days it took to recover.
How to read maximum drawdown
Current drawdown, which you also see on stock pages, is the same calculation but against the most recent peak: how far today's price is below its high.
When maximum drawdown can fool you
It depends on the period: over 3 years it may look fine, over 20 years it may include a crisis. It does not say how fast the fall came.
Related terms
Questions about maximum drawdown
Why is a big drop hard to recover from?
Because the recovery starts from a lower price. After −50%, you need +100% to get back.
These explanations are for information only. They are not a recommendation to buy or sell.
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