A market drawdown is a peak-to-trough decline during a specific investment period. This decline is typically measured as a % but can also be expressed as a number.
What is a Maximum Drawdown
A "maximum drawdown" is the largest historical loss for an asset, measured from peak- to-trough, during a given specific time period.
In the example above the peak value for the asset was $500, and the trough value was $125. The Max Drawdown is therefore $375, a large drop of 75%.
Can I protect myself against these drawdowns?
Yes. This is core to what we do at Libertify. We provide you with protection from the dangers of market drawdowns.
We do this by continuously withdrawing some or all of your capital during the early stages of the market's decline and convert it into a less volatile cash reserve.
Once exited, you avoid the full exposure of the drawdown unlike a HODL'er of course, who experiences the full 100% of the drop and prays for the rebound begin.
Once Libertify identifies a downward trend, the amount we advise you to sell (protect) depends on the combination of the market regime and your personal level of risk, an insight we learn from your answers during the risk assessment quiz.
If you are not currently protected from crypto drawdowns, start by taking the risk assessment quiz here.