Maximum drawdown is the largest drop from a peak to a subsequent trough in the value of a portfolio, before it recovers to a new high. If a portfolio fell from ₹10 lakh to ₹7 lakh at its worst, its maximum drawdown was 30%.
Why it is the honest risk number
Volatility describes typical swings; drawdown describes the worst case you actually lived through. It is the number that tells you whether you can emotionally survive a strategy. A backtest showing high returns with a 60% drawdown is describing a portfolio most people would abandon at the bottom — which is exactly when it matters not to.