Maximum Drawdown

The largest peak-to-trough decline in the value of a portfolio or trading account before a new high is reached. Maximum drawdown measures the worst-case pain an investor would have experienced during a given period and is considered one of the most important risk metrics in professional money management. A strategy that returns 20% annually but carries a 60% maximum drawdown may look great on paper until the trader actually has to live through watching more than half their account evaporate.