Understanding the Drawdown Severity Score™
Our proprietary indicator that reveals the relative severity of drawdowns based on each asset's unique historical patterns.
What Is the Drawdown Severity Score™?
The Drawdown Severity Score™ is a proprietary calculation that measures how unusual or severe the current drawdown is for a particular asset compared to its own historical patterns. Unlike simple percentage drops, this indicator contextualizes the current situation within decades of price history.
Every stock and cryptocurrency has its own unique volatility profile. A 20% drawdown might be routine for a volatile tech stock but alarming for a stable blue-chip. Our Severity Score accounts for this by comparing the current drawdown against the asset's historical average drawdown behavior.
Key Point: The Severity Score is relative to each individual asset's history.
A severity score of 5.0 for AAPL and 5.0 for a volatile crypto both indicate similarly serious drawdowns relative to their own typical patterns—even though the percentage drops might be very different.
How to Interpret the Score
While we don't disclose the specific algorithmic details, understanding the general ranges will help you make informed decisions:
≤ 1.0
Garden-VarietyNormal, Routine Drawdown
This is a typical pullback for this particular asset. Based on historical data, drawdowns of this magnitude happen regularly. While it might still represent a buying opportunity for long-term investors, there's nothing historically unusual about the current decline.
1.0 - 5.0
ElevatedAbove-Average Drawdown
The current drawdown is larger than the historical average for this asset. This indicates an elevated level of decline that doesn't happen every day. For value-focused investors, this range often signals attractive entry points worth investigating further.
5.0 - 10.0
SeriousSignificantly Severe Drawdown
This is a really serious drawdown. Historically, the asset rarely experiences declines of this magnitude. These levels often represent significant buying opportunities for long-term investors with strong conviction, though they also warrant careful analysis of whether fundamental conditions have changed.
> 10.0
EpicExtremely Rare, Epic Drawdown
This is an epic, historically rare drawdown. Based on decades of data, declines of this severity are extremely uncommon. These moments often coincide with major market crashes, company-specific crises, or once-in-a-decade events. They can represent generational buying opportunities or signal fundamental problems—thorough research is essential.
Connection to Status Levels
The Severity Score directly informs our 9-level status system that you see throughout the platform:
Green Zone
- At All-Time High
- Near ATH
- Typical Drawdown
Yellow Zone
- Slightly Elevated
- Elevated
- Significant
Red Zone
- Strong
- Large
- Epic
Why This Matters
Context Over Noise
Raw percentage drops don't tell the full story. A 20% drop might be catastrophic for one stock but routine for another. The Severity Score gives you instant context.
Identify True Opportunities
High severity scores highlight moments when an asset is trading at historically unusual discount levels—the exact moments long-term value investors look for.
Save Time & Mental Energy
Instead of manually tracking and calculating historical patterns for every stock you follow, our system does it automatically, alerting you only when it truly matters.
Avoid Panic Selling
Seeing a low severity score during a pullback can provide reassurance that what feels scary is actually normal volatility for that asset.
Important Notes
Not a Buy/Sell Signal: The Severity Score is an informational tool, not investment advice. High severity indicates unusual historical conditions, but doesn't guarantee future performance.
Consider Fundamentals: A high severity score should prompt research, not automatic purchases. Investigate whether company fundamentals have changed or if external factors justify the decline.
Historical Data Based: The score relies on historical price patterns. "Past performance is not indicative of future results" always applies.
Asset-Specific: Each asset's score is calculated independently based on its own unique history. Scores aren't comparable across different assets in absolute terms.
Frequently Asked Questions
Do you share the exact formula for calculating the Severity Score?
No, the specific algorithmic details are proprietary. However, we provide comprehensive guidance on how to interpret the score ranges so you can make informed investment decisions.
How often is the Severity Score updated?
The score is recalculated daily as new price data comes in. Our system processes market data every weekday after market close.
Can I set alerts based on specific severity thresholds?
Yes! When you add a stock to your monitoring list, you can configure alert triggers based on severity thresholds. For example, you might want to be notified only when the severity exceeds 3.0.
How much historical data do you use?
We analyze up to 40 years of historical price data (when available) to establish each asset's typical drawdown patterns. More data means more accurate severity calculations.
What if a stock has changed fundamentally?
The Severity Score is based purely on historical price patterns and doesn't account for fundamental changes (like new business models, management changes, or industry disruption). Always combine quantitative signals with fundamental analysis.
Stop Checking Every Day. Wake Up When It Matters.
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