What is a Drawdown? — AI Glossary

What it is: The fall from a peak to the lowest point that follows, as a percentage.
Who it is for: Anyone judging the risk of a strategy rather than its returns.
Best if: You want to know the worst it got, not just where it ended.
Skip if: You only care about the final number. Drawdown is about the journey. Want one practical AI workflow every morning? Subscribe to our free daily newsletter.

What is a drawdown?

Take the highest point an account reached, then the lowest point after it before a new high. The percentage gap between them is the drawdown. Maximum drawdown is the worst such fall in the whole period.

Why does it matter more than returns?

Two strategies can finish the same year at the same total and be completely different to live through. One drifts up steadily, the other halves before recovering.

Drawdown is the number that decides whether you would actually stay invested. A strategy nobody can hold is not a strategy.

How to read it

Losses need larger gains to undo them. A 50% fall requires a 100% rise to get back to level, and a 90% fall requires 900%. Deep drawdowns are far harder to recover from than they look.

Watch it alongside trade count. A big drawdown from a handful of trades may be luck, but a big drawdown from hundreds points at the rules themselves.

Related terms

• What is a stop loss?
• What is a backtest?
• What is a VCP?

Learn more on Beginners in AI

• I tested TrendSpider AI on 2 trading strategies
• Best AI trading platforms
• AI for stock trading

Sources and further reading

• Grokipedia: Drawdown

Last reviewed: August 2026. AI terminology evolves quickly — verify specifics on the official source pages above.

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