A framework for writing drawdown rules before you need them: the loss you can hold through, the recovery math, what the S&P 500’s own declines looked like, what to cut first, and whether to follow your losses or market conditions.
Market risk reading, cross‑asset context and an events calendar: see Exent →
Compare the loss with a rule you set before the fall, not with how you feel today. Three questions decide most cases: is the loss inside the limit you planned for, which holdings caused it, and will you need the money in the next few years? A 20% fall in an all‑stock portfolio is painful but ordinary. The same fall in a portfolio you planned to keep within −10% means it held more risk than you thought.
A drawdown rule turns that into a plan. Start from the loss you can sit through in dollars (see how big a drawdown you can tolerate), then write down what happens at each level. The table is a framework, not advice; the levels are examples. It is one part of portfolio protection, alongside where the money goes when you step aside.
| Portfolio fall | What it has meant | A rule some investors write in advance |
|---|---|---|
| −10% | A correction: the S&P 500 had five declines of 10% or more since mid‑2016 | Review only: check cash needs and that the mix is on target |
| −20% | Bear‑market territory for the index; 2× and 3× funds were often down 35–60% | Cut leverage and high‑beta holdings first, then rebalance to the plan |
| −30% | Deeper than every S&P 500 fall since 2016 except COVID (−34.1%) | Act on the limit set in advance: hold the plan, or move to the mix you can sit through |
Data through the close of Nov 2, 2026. The S&P 500 fell 1.7% over the last five trading days, and the Nasdaq‑100 fell 4.4%. The S&P 500 is 3.5% below its record close of Oct 6: a small dip from its record. It is 3.1% above its 200‑day average (+5.2% a week earlier). Its 20‑day volatility is 11.3% a year, about normal for the period since 2016.
Daily closes over the last year, through Nov 2, 2026. Green: the index above its average; red: below it.
Through Nov 2, 2026. “vs 200‑day avg.” = how far the close sits above or below its 200‑day average.
| Index fund | Last 5 days | Year to date | From its high | vs 200‑day avg. |
|---|---|---|---|---|
| S&P 500 (SPY) | −1.7% | +11.2% | −3.5% | +3.1% |
| Nasdaq‑100 (QQQ) | −4.4% | +11.2% | −10.3% | +0.2% |
| Russell 2000 (IWM) | +0.8% | +14.2% | −8.3% | +0.5% |
| Index fund | S&P 500 (SPY) | Nasdaq‑100 (QQQ) | Russell 2000 (IWM) |
|---|---|---|---|
| Last 5 days | −1.7% | −4.4% | +0.8% |
| Year to date | +11.2% | +11.2% | +14.2% |
| From its high | −3.5% | −10.3% | −8.3% |
| vs 200‑day avg. | +3.1% | +0.2% | +0.5% |
Last updated Nov 2, 2026. Members only.
| Exent regime pillar | Today |
|---|---|
| Liquidity | |
| Credit stress | |
| Economic cycle | |
| Sentiment | |
| Regime: Risk ON · Neutral · Risk OFF |
Price trend and volatility show what the market has already done. Exent’s macro regime score reads the backdrop behind it (liquidity, credit stress, the economic cycle and sentiment) and classifies it as Risk ON, Neutral or Risk OFF. Market intel members see today’s reading and get an alert when it changes.
More than it lost, and the gap widens fast. A loss of L needs a gain of L ÷ (1 − L) to get back to even. That is why a drawdown rule matters more for deep falls than shallow ones.
| Loss | Gain needed to recover | $500,000 becomes (Illustrative) | Where it happened (Exent’s data) |
|---|---|---|---|
| −10% | +11.1% | $450,000 | S&P 500, Jan–Apr 2018 (−10.2%) |
| −20% | +25.0% | $400,000 | S&P 500, Q4 2018 (−20.2%) |
| −30% | +42.9% | $350,000 | High‑beta S&P 500 stocks (SPHB), 2022 (−30.1%) |
| −33.7% | +50.8% | $331,500 | S&P 500 fund (SPY), COVID 2020 |
| −50% | +100% | $250,000 | 3× S&P 500 (UPRO), Q4 2018 (−50.3%) |
| −80% | +400% | $100,000 | 3× Nasdaq‑100 (TQQQ), 2021–22 (−81.6%) |
The largest fall over a period is the maximum drawdown; it is the number a drawdown rule is written against.
In Exent’s data (Jul 2016 – Sep 2026), the S&P 500 fell 10% or more five times and 5% or more 13 times. Only one fall, in 2020, went past 30%. Price closes, peak to trough:
| Peak | Trough | Fall | Back to the peak | Trading days, peak to recovery |
|---|---|---|---|---|
| Jan 26, 2018 | Apr 2, 2018 | −10.2% | Aug 24, 2018 | 146 |
| Sep 20, 2018 | Dec 24, 2018 | −20.2% | Apr 29, 2019 | 150 |
| Feb 19, 2020 | Mar 23, 2020 | −34.1% | Aug 18, 2020 | 126 |
| Jan 3, 2022 | Oct 12, 2022 | −25.4% | Jan 19, 2024 | 513 |
| Feb 19, 2025 | Apr 8, 2025 | −19.0% | Jun 27, 2025 | 89 |
Two patterns matter for a drawdown rule. The depth did not predict the wait: the 34.1% COVID fall took 126 trading days from peak to new high, the 25.4% fall of 2022 took 513. And the best days came during or just after the falls. All 10 of the best days in the period came while the index was below its 200‑day average, and 8 of them within two weeks of one of the 10 worst days. On April 9, 2025, a day after the 2025 low, the index rose more than 9.5%, its best day since 2008, Yahoo Finance reported. A rule that sold at −19% that week would have missed it. More on what is ordinary in normal drawdowns for a stock portfolio.
A portfolio rule looks at the total; a stop‑loss order looks at one position. In a diversified portfolio a single stock falling 30% is not a portfolio event, while the whole portfolio falling 20% is. The two tools work differently:
| Portfolio drawdown rule | Single‑stock stop‑loss order | |
|---|---|---|
| Trigger | Total value falls a set % from its high | One price trades at or below the stop |
| What it does | You reduce the riskiest parts, or rebalance | Your broker sells the shares the order covers |
| Gap risk | No order sits in the market; you choose how and when to sell | Fills at the next price, which can be far below the stop |
| Main weakness | Needs discipline when the trigger hits | Sells normal dips that later recover |
The data on whipsaws and gaps is in should you use stop‑loss orders.
The ones that fall fastest: leveraged funds and high‑beta stocks. Each fund’s own largest fall inside the last four selloffs, from the same data:
| Fund | Q4 2018 | COVID 2020 | 2022 bear | 2025 tariffs |
|---|---|---|---|---|
| S&P 500 (SPY) | −19.3% | −33.7% | −24.5% | −18.8% |
| Nasdaq‑100 (QQQ) | −22.8% | −28.6% | −34.8% | −22.8% |
| 2× S&P 500 (SSO) | −36.5% | −59.3% | −46.7% | −35.1% |
| 3× Nasdaq‑100 (TQQQ) | −57.9% | −69.9% | −80.9% | −56.7% |
When the S&P 500 fell about 20%, a 2× fund fell about 35% and a 3× Nasdaq‑100 fund about 57%. A rule that waits for the whole portfolio to reach −20% can find the leveraged slice already past −50%, which then needs a 100% gain to recover. That is why many rules set a tighter limit on the leveraged and high‑beta part than on the core. Fund data: SSO, TQQQ.
Rules on your own losses are simple but late: by definition they act after the fall. Rules on market conditions read the backdrop instead and try to cut risk before or early in a bear market, then add it back when conditions improve. One form is a macro regime score, which classifies the backdrop as risk‑on, neutral or risk‑off.
Many investors combine the two: a conditions rule for when to reduce risk, and a loss limit as the backstop, written into one document with a re‑entry condition, as in how to write a market crash plan. If the fall is already under way, start with what to do when the market is crashing.
It saved depth and cost return. In a hypothetical backtest (Jan 2017 – Sep 2026), holding the S&P 500 only while it closed above its 200‑day average, and T‑bills otherwise, cut the worst fall from −33.7% to −19.2%. It also cut the return from 15.1% to 10.3% a year, switched 58 times and was invested 82% of the time. That is before trading costs and taxes; in a taxable account every switch out is a taxable sale. Fast crashes such as COVID did much of their damage before the rule reacted, which is why investors often use it as one rule among several.
There is no standard number. Investors usually start from the dollar loss they could hold through without selling, set a review level such as −10%, and set a tighter limit for leveraged and high-beta holdings than for the core.
Selling after a 20% fall often locks in the loss near the low: in 2025 the S&P 500 fell 19% and was back at its high less than three months after the low. Check the loss against your plan, your cash needs and which holdings caused it before acting.
When the loss breaks a limit you set in advance, or when the holding no longer fits the plan. Cutting leveraged and high-beta positions first reduces risk faster than selling broad index funds.
It caps how deep a loss gets, but it sells after the fall and can miss the rebound. In Exent’s data, all 10 of the S&P 500’s best days since mid-2016 came while it was below its 200-day average, and 8 of them within two weeks of one of the 10 worst days.
A 42.9% gain. A 20% loss needs 25%, a 50% loss needs 100% and an 80% loss needs 400%.
In Exent’s data the S&P 500 took 150 trading days from peak to new high after its 20.2% fall in 2018, 89 after the 19% fall in 2025, and 513 after the 25.4% fall of 2022.
Market intel provides a Risk ON / Neutral / Risk OFF reading from four pillars, cross-asset analysis, an events calendar and regular written notes. Context for reviewing a plan, not a crash forecast.
Educational content, not investment advice. Examples are illustrative; past performance does not guarantee future results.