Learn the terms · Longer read
Drawdown: the fall from a peak, and the arithmetic of getting back
The fall from a peak to the low that follows it, measured in percent. The arithmetic is asymmetric: a 20% drawdown needs a 25% rise just to get back to even, and a 50% drawdown needs 100%. That is why the size of losses matters more than it feels.
What it measures
Take the highest point a price or a portfolio has reached, and the lowest point it fell to before making a new high. The distance between them, as a percentage of the peak, is the drawdown. A stock that went from 100 to 60 and later back above 100 had a 40% drawdown along the way, even though someone who held throughout ended up ahead. The maximum drawdown over a period is the largest of these falls, and it is the figure that describes how bad the worst stretch was.
The 52-week range on every Trendentum stock page is the same idea over one year: where the price sits today between its high and its low. A stock near the bottom of its range has, by definition, drawn down from the top of it; how far is the number to look at.
The arithmetic people forget
Losses and gains are not symmetric, because the gain has to be earned on a smaller base. Fall 10% and you need 11% to recover. Fall 20% and you need 25%. Fall 33% and you need 50%. Fall 50% and you need to double. Fall 80% and you need to quintuple - a 400% rise - just to be back where you started. Each step down makes the next step up steeper, which is the whole reason experienced investors talk about the size of losses first and the size of gains second.
This is also why volatility is not a neutral word. Two holdings with the same average return but different swings do not end up in the same place; the one that fell further along the way spent more of its rises climbing back. Market Conditions reads each stock's volatility against its own normal for exactly this reason - a bigger-than-usual swing is a bigger-than-usual hole to climb out of.
What it is not
A drawdown figure is not a prediction of the next one. Past maximum drawdown tells you how bad it has been, and the next stretch can be worse; every long price history contains a fall that was, at the time, the largest yet. It is also not a reason on its own to do anything - Trendentum shows the range and the volatility read and leaves what to make of them to you.
The idea earns its place on the principles page under "You can't predict. You can prepare": not because falls can be avoided, but because knowing the arithmetic in advance changes how a fall feels when it arrives, and how much of a position's size was chosen with that fall in mind.
An example
A holding bought at 100 rises to 130, then falls to 91 over four months before recovering. Its drawdown from the peak is 30%, and from the low it needs a 43% rise to see 130 again - not 30%. Someone who bought at 100 is still 9% down at the low and needs 10% to break even; someone who bought at the peak needs the full 43%. Same stock, same chart, three different holes to climb out of, which is why the size of the fall is measured from the peak and not from wherever you happened to get in.
Where you’ll see it on Trendentum
- The 52-week range on every stock page
- The Risk tab of "Your stocks" on the dashboard - each holding's fall from its highest close of the last 252 trading days
- The volatility read under Market Conditions
- The investing principles page
Every term on this page is used the same way across the app, and the exact thresholds behind each rule are on the methodology page. Trendentum explains every call and never tells you what to do with it.