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Drawdown duration

How long an account stays below a prior equity peak, which usually matters more to a trader's survival than the depth of the decline.

Duration runs from the peak to the recovery of that peak, not to the trough. A decline that bottoms in three weeks and takes fourteen months to recover is a fourteen-month drawdown, and that is the number people actually experience.

It is also the measure that ends careers. A 15% decline is tolerable; a 15% decline lasting two years, during which a passive index rose, produces a slow collapse of conviction that no single day would have caused. Managed futures records regularly show multi-year durations, which is why so few investors capture their long-run returns.

Report the distribution, not just the maximum: the median duration, the longest, and the count of drawdowns exceeding some threshold. See time-to-recovery and flat-time.

Related: time-to-recovery, flat-time, underwater-curve, ulcer-index

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

An equity curve and its drawdownAn account balance rising over a year, falling from a peak to a trough, then climbing back to the old peak.ACCOUNT EQUITY$20k$12k$8k024681012TIME (MONTHS)PEAK $16,000TROUGH $12,000DRAWDOWN−25%RECOVERY
Equity curve and drawdown. An account balance plotted month by month. The fall from the $16,000 peak to the $12,000 trough is a 25% drawdown, and the shaded area lasts until the balance climbs back to the old peak.

Educational only, not advice. Spotted an error? Post in Site Feedback.