Drawdown duration
How long does capital stay below its previous peak, and why does the length of that wait matter?
In plain words
Drawdown duration is the time a market spends below a previous peak before recovering to that peak again. It counts the elapsed days or weeks of negative territory, not the size of the fall, which is the drawdown depth.
Why it matters
A shallow drawdown that lasts years can cost more in opportunity and carrying cost than a deep one that recovers in months. For anyone funding or benchmarking a position, the calendar length of time below the high sets how long capital is effectively idle or under water.
In a real week: ETH, week of 12 November 2018
In the week of 12 November 2018, ETH fell 15.82% and closed 178.97, which was 84.56% below its 52-week high. The prior four weekly returns were 5.41%, -1.19%, 3.47% and 0.19%, so no sustained push towards the high had formed. The weekly low of 170.99 on Thursday deepened the fall, and the close sat in the lower third of the week range, so the price ended the week still well below its prior peak with the drawdown still running.
A common mistake
Focusing only on the depth of a drawdown. A market can be far below its peak yet recovering quickly, or closer to the peak yet stuck there for a long time.