Drawdown

[cashtrader]

Please could someone explain what 'Drawdown' means I have
read this terminology on these boards but don'texactly know what it means.

Thanks

 

[frugi]

Drawdown is magnitude of a decline in account value, either in percentage or dollar terms, as measured from peak to subsequent trough.

 For example, if a trader's account increased in value from $10,000 to $20,000, then dropped to $15,000, then increased again to $25,000, that trader would have had a maximum drawdown of $5,000 (incurred when the account declined from $20,000 to $15,000) even though that trader's account was never in a loss position from inception.

 

[cashtrader]

Thanks frugi!