Drawdown

A drawdown measures how far a price has fallen from its previous high — its peak — to the lowest point that follows, called the trough. It is always expressed as a percentage. Suppose an asset peaks at $100, then falls to $60 before recovering. That is a 40% drawdown. The figure only becomes final once the price stops falling and begins recovering, so in real time traders are watching a running drawdown that could deepen further.

Drawdown shows up constantly in market data because it captures risk in a way that raw price levels cannot. A 40% decline requires a roughly 67% gain just to get back to where it started — a mathematical asymmetry that surprises many readers. That recovery requirement is sometimes called drawdown math: the steeper the fall, the disproportionately larger the climb needed to recover. You can explore how percentage moves work in the guide on reading percentage moves.

A common confusion is treating drawdown as the same as a daily loss or a simple price change. It is not. Drawdown is measured from a specific historical peak, not from yesterday's close. Another misread: a small drawdown does not mean low volatility — a price can oscillate wildly yet keep setting new highs, producing a modest drawdown figure even during turbulent periods.