---
title: "Max drawdown"
description: "Max drawdown is the largest peak-to-trough fall in a strategy's value over the backtest, as a percentage of that peak — the worst decline, not the final loss."
canonical_url: "https://fincanva.com/glossary/max-drawdown"
last_updated: "2026-10-03"
md_url: "https://fincanva.com/glossary/max-drawdown.md"
---

# Max drawdown

Max drawdown is the largest fall from a previous peak in a [strategy](/glossary/strategy)'s value to a later low, measured as a percentage of that peak, over the whole [backtest](/glossary/backtest) period. It is the **worst peak-to-trough fall** the strategy would have lived through — not the loss it ended the period with.

**Also seen as:** Max DD, DD

A single drawdown is any fall from a running peak to a later low; max drawdown is the deepest of them. The term stays *drawdown* in every language, including Italian.

## How is max drawdown calculated?

Max drawdown compares each low point against the highest value reached before it, and keeps the worst result: the peak-and-trough pair chosen is the one producing the largest fall anywhere in the period. Because it is a ratio, max drawdown does not depend on how much [starting capital](/glossary/starting-capital) you used.

$$
\text{max drawdown} = \frac{{\text{trough value}} - {\text{peak value}}}{{\text{peak value}}}
$$

where:

- the lowest value reached after that peak, before the strategy recovered
- the highest value the strategy had reached before the fall

## How does Fincanva handle it?

A backtest's Capital Growth page opens on four tiles: Final value, Vs benchmark, Max drawdown and CAGR.

- Max drawdown is measured on the strategy's [capital curve](/glossary/equity-curve) over the whole backtest window, and shown as a negative percentage — a deeper fall is a more negative number.
- The [metrics table](/glossary/metrics-table) shows it in the **Drawdown** group as the row **Max drawdown**; the capital view shows the same figure as a KPI, and the by-year table repeats it per calendar year. The [monthly returns heatmap](/glossary/months-matrix) shows the per-year version in the compact **DD** column.
- Your [benchmark](/glossary/benchmark) gets its own max drawdown over the same window, so the two are directly comparable.

## What does it look like in practice?

A strategy climbs to a peak of 12,000, then falls to a low of 9,000 before recovering. Its drawdown from that peak is (9,000 − 12,000) ÷ 12,000 = −25%. If no other fall in the period is deeper, −25% is the max drawdown.

Now suppose the same strategy recovers and finishes the backtest at 14,000, a [total return](/glossary/total-return) of +40%. The max drawdown is still −25%: the figure records the worst dip along the path, and a strong ending does not erase it. Total return asks where you ended; max drawdown asks how bad it got on the way.

## Where else does Fincanva use max drawdown?

- Max drawdown is selectable as the **Risk measure** in the [Inverse volatility](/glossary/inverse-volatility) allocation method, as the alternative to **Annualized volatility** — there it decides weights rather than reporting a result.
- It feeds the [return-to-drawdown ratio](/glossary/return-to-drawdown-ratio), which divides the period's return by the size of the max drawdown.
- A drawdown deep enough to reach the simulation's floor triggers the [bankruptcy rules](/glossary/bankruptcy-rules), which close every position and leave the curve flat for the rest of the run.

## What counts as a good value?

A max drawdown closer to zero means the strategy's value never fell far below its running high during the period. It describes **depth only** — it says nothing about how long the strategy stayed down, which is what [longest drawdown](/glossary/longest-drawdown) and [longest recovery](/glossary/longest-recovery) measure, nor how far below its own starting point a typical start date left it, which is [average pain](/glossary/average-pain). Two strategies with the same max drawdown can look very different if one recovered in two months and the other took three years.

Max drawdown is also period-bound: it can only report the worst fall that happened inside your backtest window, so a shorter window has had fewer chances to produce a deep one.

*No drawdown figure is a limit on future losses.*

Fincanva is for education and illustration only. It is not personalised financial advice, and past or simulated results do not predict future ones. [Read the Terms Addendum](https://fincanva.com/terms/addendum#section-3)