Drawdown

Drawdown measures the decline in an account's value from its most recent peak, usually expressed as a percentage. For example, if an account grows to $10,000 and then falls to $8,000, that's a 20% drawdown. Traders and fund managers watch maximum drawdown closely because it reflects real risk exposure — a strategy with a smaller maximum drawdown is generally easier to stick with psychologically and requires a smaller subsequent gain to recover.