Measure from the peak
Using a consistent equity series, drawdown is (peak equity − current equity) ÷ peak equity. Maximum drawdown is the largest peak-to-trough decline observed over the chosen period. State whether equity includes open positions and how deposits or withdrawals are handled.
Why recovery is asymmetric
A fall from $10,000 to $8,000 is a 20% loss. Recovering $2,000 from the smaller $8,000 base requires a 25% gain. After a 50% loss, the remaining capital must double to regain the starting amount. These are arithmetic relationships, not forecasts.
Comparison table
| Loss from peak | Gain to recover |
|---|---|
| 10% | 11.11% |
| 20% | 25% |
| 30% | 42.86% |
| 50% | 100% |
What the number leaves out
A single maximum drawdown does not show how long recovery took or how frequently losses occurred. It is also conditional on the period observed. An untested future can be worse than the historical sample. Compare return, drawdown and time underwater rather than treating one percentage as a complete risk description.
Sources & method
The calculations use stated hypothetical inputs and reproducible arithmetic. They are not achieved returns.