What is Drawdown?
Drawdown is the percentage fall in value from a peak to the following low, and the maximum drawdown is the largest such fall over a period.
How it works
A strategy that rises from 100 to 150 and then falls to 90 has a drawdown of 40% from its peak. Maximum drawdown shows the worst stretch an investor would have lived through, and a larger drawdown needs a larger gain to recover: a 50% loss needs a 100% gain to get back to even.
What it can't tell you
The maximum drawdown in a backtest is only the worst case so far in the sample. A longer or different period can contain a deeper one.
How Tickfloor uses it
Tickfloor's holdout results report each rule's deepest drawdown next to its benchmark's.
Does it work as a strategy?
This is a concept more than a trading rule, so there is no single strategy to score. It matters for reading the results below.
Tickfloor's research desk has backtested 517 strategies, most against an equal-weight benchmark of the same assets rebalanced daily that pays no costs (the strategies pay theirs). After correcting for the 598 tests run (Benjamini-Hochberg), 0 passed. That does not prove no strategy works. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.
General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.
Common questions
What is Drawdown?
Drawdown is the percentage fall in value from a peak to the following low, and the maximum drawdown is the largest such fall over a period.
How does Drawdown work?
A strategy that rises from 100 to 150 and then falls to 90 has a drawdown of 40% from its peak. Maximum drawdown shows the worst stretch an investor would have lived through, and a larger drawdown needs a larger gain to recover: a 50% loss needs a 100% gain to get back to even.
What are the limits of Drawdown?
The maximum drawdown in a backtest is only the worst case so far in the sample. A longer or different period can contain a deeper one.
How does Tickfloor use Drawdown?
Tickfloor's holdout results report each rule's deepest drawdown next to its benchmark's.