# Maximum drawdown

> Maximum drawdown is the worst peak-to-trough fall your portfolio has actually had in the selected window. It measures the loss you lived through, not the one a model predicts.

> These figures are derived from a return series that the app currently flags as being reworked.
> Values and holdings are unaffected. See [about these numbers](/metrics/about-these-numbers).

Maximum drawdown is the largest fall from a high point to a subsequent low
point that your portfolio actually went through, in the window you have
selected.

Where [volatility](/metrics/volatility) describes the average spread of
outcomes, drawdown describes the single worst stretch. It is the number that
corresponds to how an investment felt, because nobody experiences a standard
deviation, but everybody remembers watching a balance fall by a third.

## How it is calculated

Gylder walks your value series from the start of the window, keeping track of
the highest value seen so far, and records the largest percentage fall below
that running peak:

```
drawdown at each point = value / highest value so far − 1
maximum drawdown       = the most negative of those
```

It is always zero or negative. A portfolio that only ever rose has a maximum
drawdown of zero.

Two things follow from the definition. The peak has to come before the trough,
so this is a fall you actually experienced rather than the gap between the
best and worst days in any order. And recovery is not part of it: a portfolio
that fell 30% and fully recovered still shows a 30% maximum drawdown, because
it did happen.

## How to read it

A larger figure means a deeper hole at some point in the window. Gylder does
not tell you what an acceptable drawdown is. That depends on your horizon and
on what you would have done partway down, which is a question about you rather
than about the portfolio.

Two cautions when comparing.

**It depends heavily on the window.** A one year drawdown and a ten year one
are not comparable, because the longer window has simply had more opportunity
to contain a bad stretch. Changing the date range on the Performance chart
recalculates this along with everything else.

**It is a single event.** One number tells you the worst episode happened, not
how often bad episodes happen. A portfolio with one severe drawdown and one
with five moderate ones can report similar figures while behaving nothing
alike.

## Where it is used

Maximum drawdown is the denominator of the [Calmar ratio](/metrics/calmar-ratio),
which sets your annualised return against it. For a forward looking estimate of
loss rather than a historical worst case, see
[value at risk](/metrics/value-at-risk).