Drawdown Recovery: Why a 50% Loss Needs a 100% Gain
Why getting back from a loss takes a bigger gain than the loss itself, the recovery table and formula, how risk per trade changes it, and what to do about it.
Getting back from a loss always takes a bigger percentage gain than the loss itself, because the gain has to be made on a smaller balance. A 50% loss needs a 100% gain. This one fact is the reason experienced traders care so much about keeping the risk on each trade small.
The recovery table
| Loss | Gain needed |
|---|---|
| 5% | 5.3% |
| 10% | 11.1% |
| 20% | 25% |
| 30% | 42.9% |
| 40% | 66.7% |
| 50% | 100% |
| 75% | 300% |
| 90% | 900% |
The formula is gain needed = loss ÷ (1 − loss). Small losses are nearly symmetrical. Past about 30% the climb gets steep very fast. The drawdown recovery calculator works it out for your balance.
What your risk per trade does to it
Losing runs are normal. Even a strategy that wins half of its trades will sometimes lose 8 or 10 in a row. How much that hurts depends only on your size:
| Risk per trade | After 10 straight losses | Gain to recover |
|---|---|---|
| 0.5% | -4.9% | 5.1% |
| 1% | -9.6% | 10.6% |
| 2% | -18.3% | 22.4% |
| 5% | -40.1% | 67% |
| 10% | -65.1% | 187% |
At 1% a bad run is an annoyance. At 10% it is close to the end of the account. See how much to risk per trade for how to pick your number, and the lot size and futures position size calculators to turn it into a trade size.
What to do in a drawdown
- Cut your size. Half size slows the bleeding and takes the pressure off.
- Check for rule breaks. Separate losses from following the plan and losses from breaking it. Only the second kind can be fixed today.
- Set a stop for the day. A daily loss limit prevents the worst sessions and revenge trading.
- Don't raise your risk to catch up. It feels logical, but it makes a deeper hole more likely just when the account is smallest.
Prop firm drawdowns work differently
On a prop firm account, the limit is usually a dollar amount, and it can trail your highest balance. Hit the level and the account is gone, with no chance to recover. Read trailing drawdown explained before you size up on one.
You can feel what a losing run does to your decisions without paying for it: an evaluation account on ChartTrainer enforces the drawdown and daily loss rules on replayed days. Practice results don't promise real results.
Questions
- How much gain do I need after a 20% loss?
- 25%. An account down 20% has 80% left, and 20 divided by 80 is 25%.
- What is the formula for drawdown recovery?
- Gain needed = loss / (1 - loss). A 30% loss is 0.30 / 0.70, about 43%.
- What should I do during a drawdown?
- Most traders cut their size, go back over recent trades for rule breaks, and take a break after a set loss. Raising your size to get back faster is how drawdowns get worse.
- How long does a drawdown take to recover?
- It depends on your risk and your edge. At 1% risk and 2R winners, a 10% loss takes at least 6 wins in a row, and in real trading with losses mixed in, usually several times that many trades.
- What is a normal drawdown for a trader?
- It depends on the strategy and the risk. Even good strategies have long losing runs. At 1% risk a run of 10 losses costs about 10%, so size for the streak you know will come.