Drawdown recovery maths
Lesson 1 of 3 · about 7 minutes
2 questions, each checked the moment you answer it.
6 steps · about 7 minutes
The interactive lesson walks these ideas one screen at a time and checks your answers as you go. The text below covers the same ground for reading.
You lost half your money. You now need to double what remains.
A drawdown is how far an account has fallen from its high point, measured as a percentage of that high. Start with US$100. A 50% drawdown takes US$50, leaving US$50. Earning that US$50 back is 100% of the US$50 that remains. The loss is measured from US$100. The recovery is measured from US$50. From that same US$50, a 50% gain reaches only US$75; it takes the full 100% to stand at US$100 again.
As losses grow, the percentage gain needed to recover grows even faster
Each extra percent lost also shrinks the balance the recovery is measured on. The same US$100, three depths:
How risk per trade affects a losing streak
You choose how much of your account to risk on each trade. The example below compares ten losses at 1% and 5% risk per trade. In this example, each trade loses the chosen percentage of the account's equity before that trade, so every loss is measured from a smaller account than the one before it.
The gain needed to recover is measured on what is left
Returning to the starting equity means earning back what was lost, and that gain is measured against the smaller account you are earning it on. The deeper the loss, the smaller that base, and the larger the percentage.