Drawdown

It measures the 'pain' you feel during a market crash.

If your portfolio goes from ₹100 to ₹80, your drawdown is 20%.

Recovering from a drawdown is harder than the fall itself (e.g., a 50% loss needs a 100% gain to recover).

During the COVID crash of March 2020, the Nifty 50 fell from around 12,400 to 7,500, a drawdown of nearly 40%. Investors who panicked and sold at the bottom locked in that loss. Those who held on saw the Nifty recover fully within a year.

Understanding your personal drawdown tolerance is critical before you invest. If a 30% drop in your portfolio would cause you to panic-sell, you should allocate less to equities and more to stable instruments like fixed deposits or liquid funds.

On platforms like Zerodha and Groww, you can track your portfolio's high-water mark (the highest value it has reached). The difference between that peak and the current value gives you your live drawdown percentage, which is a much better measure of risk than just looking at daily profit or loss.

Many experienced Indian traders use a maximum drawdown rule, for example, if their trading capital drops by 15-20% from its peak, they stop trading for the month and review their strategy. This discipline prevents small losses from snowballing into account-destroying drawdowns.