Drawdown is the peak-to-trough decline during a specific period for an investment, trading account, or fund, expressed as a percentage from the highest equity point to the lowest point before a new high is reached. It is a critical measure of downside risk and is used to evaluate the performance and risk profile of trading strategies and investment portfolios. Maximum drawdown, the largest peak-to-trough decline experienced, is one of the most important metrics for assessing whether a strategy's risk is acceptable.
Example
“The trading account hit a 15% drawdown after a string of losing trades, prompting the trader to reduce position sizes until the account recovered.”