Drawdown measures how far value falls from a prior high. It can be expressed as an amount or percentage and helps show the losses a strategy experiences even when its long-term result is positive.
Maximum drawdown records the largest peak-to-trough decline over an evaluation period. It adds information that a final profit figure alone cannot provide because two strategies with similar returns may expose users to very different losses along the way.
A short test may not include the conditions that produce a severe drawdown. Evaluating risk requires longer and varied evidence, transparent position values and clear treatment of unsettled outcomes.
ELI5
A drawdown is the drop from the highest value reached so far to a lower point that comes afterward. It shows how painful the journey was, not only where it ended.
For example, an account that rises to $120 and then falls to $90 has a $30 drawdown from that peak. A later recovery does not erase the fact that the decline occurred.
