Maximum Drawdown, Explained: The Recovery Math, Every S&P 500 Drawdown Since 1950, and How to Set a Limit for Your Own Account

Maximum drawdown is the largest drop from a peak to the following low in an account, a fund or an index, measured before the value makes a new high. If a $10,000 account grows to $12,000, falls to $9,000 and later climbs back above $12,000, its maximum drawdown for that stretch was 25%, from $12,000 to $9,000. It is the number that describes the worst stretch of the ride rather than the destination, and for most people it matters more than the return, because it is the stretch during which they quit.

This guide defines drawdown and maximum drawdown, shows the recovery math that makes deep drawdowns so expensive, and then does something we have not seen done in one place: it measures every drawdown in the S&P 500 since 1950, all 682 dips from a record high, including the 26 of 10% or more and the 11 bear markets, with how long each took to bottom and to recover. It ends with how to set a drawdown limit for your own account and what the daily loss brake, stop-loss and trailing stop each do about it.

Drawdown, maximum drawdown and the recovery math

A drawdown is any decline from a prior high; it is measured from the high, not from where you bought. Maximum drawdown is the deepest one over the period you are looking at. Two other numbers travel with it: time to trough, how long the decline took, and time to recover, how long it took to get back to the old high. A strategy can have a shallow maximum drawdown and a long recovery, or a deep one that heals in months, and those are different experiences.

The recovery math is what makes drawdown asymmetric. A loss needs a larger gain to undo it, and the gap widens fast:

• A 10% drawdown needs an 11.1% gain to recover.
• A 20% drawdown needs 25%.
• A 33% drawdown needs 50%.
• A 50% drawdown needs 100%, a double, just to get back to even.

That curve is the whole argument for capping losses early: the first 10% is cheap to recover and the last 10% of a 50% drawdown is not. It is also why position sizing and a stop-loss on every trade are described as survival tools rather than return tools.

Every S&P 500 drawdown since 1950, measured

We took every daily close of the S&P 500 from January 3, 1950 through October 9, 2026, from Yahoo Finance, and marked every stretch from a record close to the next record close. Each stretch is one drawdown: its depth is the lowest close in between, its length runs from the peak to the new high. Price only, no dividends, close to close. The results:

• 682 drawdowns in all, most of them tiny: 606 never reached 5%. 76 reached 5% or more, 26 reached 10% or more, and 11 reached 20% or more, the usual definition of a bear market.
• The index spends more than half its time in a drawdown of at least 5%. On 51% of all trading days since 1950 the S&P 500 closed 5% or more below its record, and on 35% of days it was 10% or more below. Being under water is the normal state, not the exception.
• A 10% drawdown typically takes about six months to bottom and five more to recover. Across the 26 drawdowns of 10% or more, the median depth was -19.6%, the median time from peak to trough was 179 days, the median time from trough back to the old high was 149 days, and the median full round trip was 423 days.
• Bear markets take about two years round trip. Across the 11 drawdowns of 20% or more, the median depth was -33.5%, with a median 445 days to the low and 464 days back to the high, a median of 746 days in all. The longest, from the January 1973 peak, took 2,744 days, more than seven years, to make a new high.
• The five deepest: -56.8% from 2007 to 2009, recovered 2013; -49.1% from 2000 to 2002, recovered 2007; -48.2% from 1973 to 1974, recovered 1980; -36.1% from 1968 to 1970, recovered 1972; -33.9% from 2020 to 2020, recovered 2020. The 2020 drawdown was the odd one: 33.9% in 33 days and fully recovered in 148, the fastest bear market round trip on the list.
• 2026 so far: one drawdown of 9.1%, from the January 27 high to March 30, recovered by April 15. As of October 14 the index sits a little more than 1% below the record it set on October 6, which is the kind of dip that happens several times in a typical year.

What the numbers mean for a plan

Three things follow. First, a diversified index holder should expect a 10% drawdown roughly every three years and a 20% one roughly every seven, and should expect each to take months to a year or more to heal. A plan that cannot sit through that is not a buy-and-hold plan, whatever it says on the label. Second, a trading strategy is judged against the same yardstick: a system whose maximum drawdown is 25% has to earn a third just to get back to flat, and most people abandon a system near its low, which turns a temporary drawdown into a permanent loss. Third, drawdown is the right unit for position sizing. If a 20% account drawdown is the most you can live through, every rule you set should trace back to that number: how much per trade, how many trades at once, and when the day stops.

How a drawdown limit becomes settings

An automated account turns a drawdown limit into three controls, and it helps to know which one does what. The terms are defined in our settings glossary.

• A stop-loss on every position caps the drawdown of one trade. Combined with position size, it fixes the most a single idea can cost the account.
• A trailing stop caps the drawdown from a position's high rather than from its entry, so a winner that reverses gives back only a set amount of its gain.
• A daily loss brake caps the drawdown of a day: once realized losses reach the limit, nothing else is bought until tomorrow. It is the one control that stops a bad morning from becoming a bad week, because it removes the next trade rather than hoping the next trade fixes it.

How members actually set them, from our settings table as of October 14 (configuration only, not results): 49 of 85 trading profiles have a daily loss brake set, and 40 of those sit at $100, which is the default a new account starts with, so most people keep it. Stops cluster at 10%, again the new-account default, with 5% the next most common; 24 profiles use a trailing stop, with a median of 4%. The honest reading is that most accounts run on defaults, and the one setting that is a real drawdown limit, the daily brake, is set on fewer than six in ten. Picking those numbers deliberately, from the account drawdown you can tolerate, is the single most useful hour you can spend in Settings.

If you would rather have the brake, the stops and the position caps enforced for you inside the brokerage account you already have, that is what JorgAI does. You can set the limits once and the system holds them on the days you would not.

Quick answers

What is maximum drawdown? The largest decline from a peak to the following low before a new peak, usually given as a percentage. It measures the worst stretch of a strategy or account, not its return.

What is a good maximum drawdown? There is no universal number. It should be the largest loss you would actually sit through without abandoning the plan, which for most people is smaller than they assume. The recovery math is the constraint: a 20% drawdown needs a 25% gain to undo, a 50% drawdown needs 100%.

How often does the S&P 500 have a 10% drawdown? 26 times since 1950, about once every three years, with a median depth of -19.6% and a median of about 423 days from the peak to a new high.

How long does the stock market take to recover from a drawdown? For 10% drawdowns the median is 149 days from the low back to the old high; for bear markets of 20% or more it is 464 days. The longest recovery since 1950 took more than seven years, from the 1973 peak to 1980.

How is drawdown different from a loss? A loss is measured from what you paid. A drawdown is measured from the highest value reached, so a position that doubled and then gave back half of the gain shows a profit and a 25% drawdown at the same time.

What is the difference between a stop-loss and a daily loss limit? A stop-loss caps one position. A daily loss limit caps the whole account's realized losses for the day and pauses new trades once it is reached.

Data: S&P 500 daily closes, January 3, 1950 through October 9, 2026, from Yahoo Finance (ticker ^GSPC); every drawdown measured by JorgAI from one record close to the next, price only, excluding dividends. Member settings figures from JorgAI trading profiles as of October 14, 2026, describing configuration only. Past patterns do not predict future returns. This article is education, not investment advice.