Maximum drawdown measures how far an account or strategy fell before reaching a new peak or the measurement period ended. It can be reported as money or a percentage and helps show the loss an investor would have experienced after entering near the prior high.
The metric adds risk context that profit alone cannot provide. It remains sensitive to the observation period, starting capital and sampling frequency, so comparisons need consistent definitions and complete account history.
ELI5
Maximum drawdown is the biggest drop from a strategy's earlier high point to a later low point. It shows how painful the worst decline was before the account recovered or the test ended.
For example, a strategy can earn $13 overall but fall by about $63 at its worst point. The positive ending does not erase that larger temporary loss, so drawdown helps people judge whether the return was worth the risk.
