Drawdown
The peak-to-trough decline in a portfolio's value before a new high is reached, expressed as a percentage from the peak.
Explained Simply
Drawdown measures the worst decline your portfolio experienced from any high point to the subsequent low point. If your portfolio grew to $100,000 then dropped to $75,000 before recovering, your maximum drawdown was 25%. Drawdown is arguably the most important risk metric for traders because it represents real pain — it's how much money you actually lost before things turned around. A 50% drawdown requires a 100% gain just to get back to even. Professional traders typically target maximum drawdowns under 20% and often have hard rules to reduce exposure or stop trading if drawdown exceeds a threshold. The duration of a drawdown (how long it takes to recover) matters as much as its depth.
How Tradewink Uses Drawdown
Tradewink's RiskManager tracks real-time portfolio drawdown and enforces configurable maximum drawdown limits. When the daily drawdown exceeds the user's threshold (default 3%), the circuit breaker triggers and halts new trade entries for the rest of the session. The TradeAnalyzer reports maximum drawdown, average drawdown, and drawdown duration in performance analytics. The ConfidenceCalibrator also reduces AI conviction scores during periods of elevated drawdown.
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See Drawdown in action
Tradewink uses drawdown as part of its AI trading signal pipeline. Start getting signals that use this concept to find real opportunities.