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Technical Analysis: Power Tools for Active Investors by Gerald Appel

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Drawdown: The Measure of Ultimate Risk

Chart 1.3. Closed Drawdowns by Volatility

Drawdown represents the maximum loss taken from a peak in portfolio value to a subsequent low before a new peak in value is achieved. The highest-volatility group, Group 9, incurred losses of as much as 68% during the 1983–2003 period, whereas the lowest-volatility group, Group 1, had a maximum drawdown of just 15%.

Drawdown, the amount by which your portfolio declines from a peak reading to its lowest value before attaining a new peak, is one of the truer measures of the risks you are taking in your investment program.

For example, let us ...

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