What is drawdown?

Drawdown is the fall from a previous peak in equity or NAV. Max drawdown is the worst of those falls over the window you measure.

The idea

A book that is up 20% for the year can still have spent months underwater from its high-water mark. Return alone hides that path. Drawdown asks: how deep did the pain get before recovery (if any)?

How to read it

• Usually shown as a negative percent from peak to trough.
• Timing matters: a short, sharp drawdown is different from a long grind.
• Recovery time is a second fact, not the same as depth.

On Backtests, max drawdown is part of the historical simulation metrics. On Live Paper, drawdown-style metrics appear only when there is enough paper history; until then they may show as blank.

What it is not

• Not a guarantee that the next drawdown will be smaller.
• Not the same as volatility (vol is bumpiness; drawdown is peak-to-trough loss).
• Not proof of skill on its own. A quiet market can hide risk.

Bottom line

If you only look at returns, you miss the journey. Drawdown is desk language for “how bad did it get.” Paper drawdowns still are not live AUM. Soft interest only via Connect.