Maximum Drawdown (MDD) measures the steepest decline an investment experienced from its highest recorded point to its subsequent lowest point, before a new high was reached. It is expressed as a negative percentage and is one of the most critical risk metrics for any investor.
Unlike volatility (which measures how much prices fluctuate around their average), drawdown captures the real investor experience: how much of your money could you have lost if you had bought at the worst possible time before a crash?
On StressTest.pro, max drawdown is calculated across the full daily price series for the measurement period. For example, NVIDIA's max drawdown in the last 10 years was approximately -63%, meaning investors who bought at the 2021 peak saw their position lose nearly two-thirds of its value before recovery. This matters enormously for portfolio sizing and risk tolerance planning.
A good rule of thumb: if an asset's max drawdown exceeds your emotional pain threshold, the position size is too large, regardless of long-term CAGR.