Understanding the Drawdown Severity Score™
Our proprietary indicator that reveals the relative severity of drawdowns based on each asset's unique volatility profile.
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
The Drawdown Severity Score™ directly maps to our 12-level status system. Each status represents a specific range of severity and rarity, with three main zones:
Green Zone (0-2): Normal / Healthy
At All-Time High
Drawdown Severity Score™: 0
The asset is exactly at its all-time high price. Zero drawdown, zero days in drawdown, strongest possible position.
Near All-Time High
Drawdown Severity Score™: 0 - 0.2
Very close to all-time high. Minor pullback within normal volatility. Healthy uptrend.
Typical
Drawdown Severity Score™: 0.2 - 1
Normal market fluctuation within expected historical range. Nothing unusual happening.
Slightly Elevated
Drawdown Severity Score™: 1 - 2
Starting to exceed typical range slightly. Still within green zone. Minor attention warranted.
Yellow Zone (2-5): Elevated / Significant
Moderately Elevated
Drawdown Severity Score™: 2 - 3
Exceeding normal range. Worth monitoring. May present entry opportunity.
Elevated
Drawdown Severity Score™: 3 - 4
Noticeably elevated relative to history. Attention recommended. Potential value emerging. Default "Watch" alert threshold (3.0).
Significant
Drawdown Severity Score™: 4 - 5
Unusually large drawdown for this asset. May present buying opportunity. Approaching severe territory.
Red Zone (5+): Severe / Rare
Strong
Drawdown Severity Score™: 5 - 6.5
Rare drawdown depth. May represent significant buying opportunity. Default "Buy" alert threshold (5.0).
Very Strong
Drawdown Severity Score™: 6.5 - 8
Very rare drawdown. May represent strong value opportunity. Major discount.
Very Large
Drawdown Severity Score™: 8 - 10
Extremely rare drawdown. May represent exceptional opportunity. Default "Strong Buy" alert threshold (8.0).
Extreme
Drawdown Severity Score™: 10 - 12
Extremely rare drawdown. Possibly exceptional opportunity. Crisis-level discount.
Historic
Drawdown Severity Score™: 12+
Historically unprecedented. Once-in-a-decade event. Possible generational buying opportunity—but thorough research is essential.
Connection to Status Levels
The Severity Score directly informs our 12-level status system that you see throughout the platform:
Green Zone
- At All-Time High
- Near All-Time High
- Typical
- Slightly Elevated
Yellow Zone
- Moderately Elevated
- Elevated
- Significant
Red Zone
- Strong
- Very Strong
- Very Large
- Extreme
- Historic
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.
See the Severity Score in Action
Want to see how the Severity Score identified real opportunities? View historical alerts with their severity scores and actual returns.
View Historical Alerts with Severity Scores →Tune Out the Noise. Wake Up When It Matters.
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