> For the complete documentation index, see [llms.txt](https://docs.etf-portfolio.com/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.etf-portfolio.com/how-to-backtest-stratigies/portfolio-analysis/mdd.md).
# Drawdown
{% hint style="info" %}
We are well aware of the consequences of large losses, which can take a psychological toll on a trader, making it difficult for them to continue with their strategy. Therefore, we recommend that you take the maximum loss as the amount of risk we can tolerate.
{% endhint %}
### **Maximum Drawdown (%)**
Short for Max Drawdown, this is the percentage decline from the maximum high to the maximum low up to that point. In a typical investment appetite analysis, the measure of your risk can be quite subjective. In an asset allocation strategy, it gives you a clear numerical indication of the maximum loss you can sustain at the moment of crisis, giving you a sense of what you can tolerate.
### **Stress Test - Portfolio performance in bear markets**
Stress testing is the process of looking separately at how we have performed in past periods of stress. We can look back and see how our strategy performed during known periods of stress in the past. We identify periods of major events so that they can be easily identified at a glance.
> **Black Friday in 1987, Asian Financial Crisis in 1997, Global Financial Crisis in 2008, Covid 19 in 2020**
### **Historical Portfolio Drawdown**
Ultimately, by looking at how much risk we can tolerate and what the peaks and valleys are, we can assess whether our strategy is within our tolerance for volatility.
---
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