Maximum Drawdown Explained: How to Calculate the Worst Drop You Have Lived Through
The One-Sentence Definition
Max drawdown asks: from any previous high point, what was the biggest percentage fall before a new high was reached?
Smaller is calmer. A 10% max drawdown means your net worth never fell more than a tenth from a peak. A 45% max drawdown means it once nearly halved.
Max drawdown is tracked automatically in Turbobulls from your full history. See it on your dashboard →
The Intuition: Peak to Trough
Picture your net worth as a line on a chart that generally rises but wobbles. Max drawdown finds the tallest peak, then the lowest point that came after it before the line climbed to a new high, and measures the drop between them.
Small drawdown
Your net worth dips a little and recovers quickly. Easy to sit through - you barely noticed. Common for cash-heavy or diversified holdings.Large drawdown
Your net worth falls a long way and stays down for a while. Emotionally hard - this is where investors panic-sell at the bottom. Common with concentrated or volatile holdings.What the Net Worth Badge Means
Inside Turbobulls, max drawdown carries the Net worth badge. That means it measures your whole financial picture, not just your investments:
- Your invested positions (stocks, ETFs, funds, crypto)
- Your wallet cash and savings
- Your broker cash
- Minus your debt
Why net worth and not just the portfolio? Because a drawdown is about the total value you watched go down. If you sold stocks and moved the money to cash, your portfolio value technically dropped to zero - but your net worth didn't move, and you didn't experience a loss. Measuring net worth keeps the number honest: it only counts real dips in what you're worth.
How to Calculate Maximum Drawdown
Maximum drawdown, often shortened to max drawdown or MDD, is one subtraction and one division:
Drawdown = (Trough value - Peak value) / Peak value
The maximum drawdown is the largest such figure across the whole period. The order matters: the trough has to come after the peak. A low before a peak is not a drawdown, it is just a smaller number earlier on.
A worked example. Your portfolio climbs to 50,000 EUR, falls to 38,000 EUR over the following months, then recovers to 55,000 EUR.
- Drawdown = (38,000 - 50,000) / 50,000 = -12,000 / 50,000 = -24%
- The later recovery to 55,000 does not reduce it. Maximum drawdown records the worst fall that happened, not where you ended up.
That last point is what makes the number useful. A portfolio that finished the year up 10% but fell 40% along the way tells you something the annual return hides completely: what you actually had to sit through.
How to Read the Number
| Max drawdown | What it typically means |
|---|---|
| 0% - 10% | Very calm. Cash-heavy, diversified, or a short, quiet period. |
| 10% - 20% | Normal for a balanced portfolio in an ordinary year. |
| 20% - 35% | A real correction. Roughly what broad stock markets do in a bad year. |
| 35% - 50% | A major bear market. The 2008 and 2020 crashes were in this range. |
| > 50% | Severe. Concentrated bets, leverage, or a crypto-heavy mix. |
There is no "good" or "bad" in the abstract - it depends on your temperament and time horizon. The point is to know your number before the next drop, so it doesn't surprise you.
Know Your Worst Drop Before It Happens Again
How Turbobulls Calculates Your Max Drawdown
In plain words: Turbobulls walks through your net worth over time, remembers the highest point it has seen so far, and records the biggest fall from that high. The largest such fall over your selected range is your max drawdown.
Max Drawdown = max over time of ( running peak − value ) / running peak
Track the running peak. As you move forward in time, keep the highest net worth seen so far.
Measure each dip. At every point, compute how far below the running peak you are, as a fraction of that peak.
Keep the worst. The largest dip across the whole range is your max drawdown, shown as a positive percentage.
Drawdown vs Volatility vs Return
These three answer different questions - do not confuse them:
A portfolio can have a great return and a terrifying drawdown. Looking at only one hides half the story.
The Full Picture: Pair Drawdown With These
Understand Your Real Downside - Automatically
Turbobulls tracks max drawdown, volatility, and a dozen more risk and return metrics from your transaction history. Real-time updates, no spreadsheets.
- Automatic max drawdown across your entire net worth history
- Return volatility and Sharpe ratio alongside it for the full risk picture
- Time-weighted and money-weighted returns to see where you ended up
- Multi-currency net worth handled natively
- Zero manual calculations - log a transaction, see updated metrics
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