Drawdown is a journey, not a statistic.
Learn to measure equity declines by depth, duration, recovery time, and the behaviour required to survive them.
Time below the peak is risk too
Depth measures the capital lost. Duration measures how long capital—and often confidence—remains trapped below its prior high-water mark.
Maximum drawdown
The largest percentage fall from an equity peak to a subsequent trough.
Drawdown duration
The time spent below the previous high-water mark before a new peak.
Recovery factor
Net profit divided by maximum drawdown; reward earned for the deepest capital decline.
Four questions every backtest must answer
How deep was the worst decline?
How long did recovery take?
How often did new drawdowns begin?
Did losses cluster in one market regime?
Drawdown & recovery calculator
Measure depth, the return required from the trough, and how much of the journey back to the previous peak is complete.
Underwater report
Peak-to-trough
-20.0%
$5,000 decline
Gain required
+25.0%
from the trough
Recovery factor: 1.50 net profit per dollar of maximum drawdown.
Respond by rule, not urgency
The point of monitoring is to trigger a prepared action while decision quality is still intact.
Lesson complete
Depth tells only half the story
Duration, recovery, and loss clustering reveal whether a strategy is operationally survivable.