Max Drawdown: The Risk Metric That Actually Matters

Returns get the headlines, but drawdown is what makes people quit. Max drawdown is the largest drop from a peak to a later low — the deepest hole your portfolio fell into.

Why drawdown matters more than return

A strategy that returns 100% but drops 70% along the way is almost impossible to hold — most people sell at the bottom. A smoother strategy with lower returns but a 15% max drawdown is often the one you actually stick with, and sticking with it is what compounds.

How to reduce drawdown

• Trend filter — don't hold assets below their moving average.
• Go to cash in bear markets — see dual momentum.
• Volatility targeting — shrink positions when markets get wild.
• Diversify — hold several coins, not one.

See your drawdown

HeroQuant draws an "underwater" drawdown chart for every backtest, so you can see exactly how deep and how long the pain was — free, no code.