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Drawdown is most commonly used to refer to the high-to-low decline experienced by a trader or fund over a specified time period.

In general drawdown is quoted as a percentage, for example if $100,000 was a trader's account high point but after a series of bad trades this dropped to $80,000 this would constitute a drawdown of 20%. Drawdown is measured from the time a retrenchment begins until a new high is reached, which is why you will often hear people referring to the max historic drawdown. Maximum drawdown is the amount of equity lost by a trader or fund during its entire history. For instance a trader may have recently experienced a 20% drawdown, but in the past he could have experienced much more significant drawdown. The biggest historic drawdown is referred to as the maximum drawdown.

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