Peak-to-Trough✓ Mathematical
◆ The PatternPeak-to-trough losses and recovery time
Maximum drawdown (MDD) is the largest peak-to-trough decline in portfolio equity. It measures the worst pain an investor endures.
MDD = maxt [ (Peakt − Trought) / Peakt ]
Recovery time — how long to regain the prior peak — matters as much as depth. A 50 % drawdown requires a 100 % gain to recover. The underwater curve plots drawdown depth over time.
// Interactive — volatility and underwater equity curve
Volatility
| Drawdown | Required Gain |
|---|---|
| 10 % | 11.1 % |
| 25 % | 33.3 % |
| 50 % | 100 % |
| 75 % | 300 % |
Behavioral impact. Drawdowns are the #1 reason investors abandon strategies — even profitable ones.
Pattern bridge: Psychological aspects of drawdowns appear in Market Psychology.