Investing · General financial education

Drawdown as a concept

Drawdown measures the fall from a prior peak to a later trough. It describes how deep a price series fell in between.

In more detail

Maximum drawdown is a past metric, not a forecast. It does not say when or whether new highs will arrive. Finmon recommends no buy-the-dip.

Background

Measure how deep the fall is. Do not treat it as a forecast. This sits next to price swings, risk, how long a climb back can take, and your time horizon. Finmon does not pick a product.

An example

A price rises to 100, falls to 70, later rises to 90. The drawdown from peak 100 to trough 70 is 30 percent.

A common misconception

After a large drawdown the old high always returns quickly.

Drawdown measures depth. Whether and when recovery comes is open.

Source: FINRA · Risk. Last reviewed: 2026-11-01. Editorially reviewed on 2026-11-01. Next review 2027-11-01. Version 0.2.0. Finmon explains. It does not advise. Not investment, tax or legal advice.