This concept of drawdown in trading is used to analyze the pattern while comparing two stocks. Maximum drawdown refers to the maximum downfall during multiple two peaks and troughs. Under the concept of drawdown, there is a term called maximum drawdown. Drawdown in trading is helpful to measure the risk while being knowledgeable about the historical risks of different stocks and their performance. ![]() 1,000, there is a drawdown of 10% before it reaches the same level of Rs. Suppose there is an investment portfolio of Rs. The drawdown also helps in setting terms or tenures for future financial goals using historical rates. Therefore, total gains from investment might be less than the probable maximum gain, by exiting at the right time. While in the case of drawdown, it is considered to find relative profitability as it is for any given particular period. Usually, the returns on investment are calculated for a particular time which can be monthly, quarterly, yearly, and so on. It is a relative term and is measured in percentage.ĭrawdown clears the concept of relative and absolute profit measurements. Simply put, a drawdown is a record low value of investments between two consecutive highs during a particular period. It is often used to determine the potential of maximum loss during a particular investment tenure. Drawdown is one such concept of the market that helps to understand the market volatility and signals to take entry or exit from an investment at the right time.Ī drawdown is the largest relative trough in an investment, following the highest relative peak in the value of an investment. To commence your trading journey the right way, it is necessary to understand the important terms and concepts that mitigate risks, optimize gains and maximize the value of the portfolio. The market is volatile and keeps moving in a bearish or bullish direction every day. Investing without a strategy is like sailing without direction. What is Dematerialization & It's Process.Difference Between Demat and Trading Account. ![]()
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