Drawdown and Recovery Math: Why a 50% Loss Needs a 100% Gain
Last updated: November 2026 · 3 min read · Educational content, not financial advice
Key takeaways
- Recovering from a loss d needs a gain of d ÷ (1 − d): 50% down needs +100%.
- After n straight losses at risk r, the drawdown is 1 − (1 − r)n.
- The order of wins and losses matters; use Monte Carlo to see realistic drawdowns instead of one average line.
Drawdown is how far your account has fallen from its highest point. It is the part of trading that people feel most, and the maths behind it is not intuitive: losses and gains are not symmetrical.
What drawdown measures
Maximum drawdown is the largest peak-to-trough decline in your account over a period, as a percentage of the peak. Example: an account grows from $10,000 to $11,000 (the new peak), then falls to $9,900. The drawdown is (11,000 − 9,900) ÷ 11,000 = 10%, even though the account is only 1% below where it started.
Why recovery needs a bigger gain
If you lose a fraction d of your account, the gain needed to get back to the old level is:
| Drawdown | Gain needed to recover |
|---|---|
| 5% | 5.3% |
| 10% | 11.1% |
| 20% | 25.0% |
| 30% | 42.9% |
| 40% | 66.7% |
| 50% | 100.0% |
| 60% | 150.0% |
| 75% | 300.0% |
The reason is simple: after a 50% loss, a $10,000 account is $5,000, and it must double to get back to $10,000. The deeper the hole, the more demanding the climb. This is the main reason risk control comes before profit targets.
How losing streaks become drawdown
With percentage risk, each loss takes a fraction of what is left. After n consecutive full losses at risk r, the drawdown is 1 − (1 − r)n.
| Risk per trade | 3 losses | 5 losses | 10 losses |
|---|---|---|---|
| 1% | 3.0% | 4.9% | 9.6% |
| 2% | 5.9% | 9.6% | 18.3% |
| 5% | 14.3% | 22.6% | 40.1% |
How likely is a long streak? If every trade has a 50% chance of losing, the chance that ten specific trades in a row are all losses is about 0.1% (one in 1,024). That sounds remote, but across hundreds of trades there are many ten-trade windows, so a streak that long is far from impossible. A strategy that loses 60% of the time makes it much more likely.
Why one backtest is not enough
The order of wins and losses changes the drawdown a lot, even when the total profit is the same. Two traders can each make 20 wins and 20 losses, but the one whose losses arrive together suffers a much deeper drawdown. That is why the calculator’s Monte Carlo tab simulates 1,000 random orderings of your trades and reports the average maximum drawdown and the typical longest losing streak, instead of showing a single smooth line.
Drawdown rules at funded-account firms
Many challenges define a maximum loss in terms of drawdown, and some measure it from the starting balance while others trail the highest balance. The difference matters: a trailing limit can shrink your room after a good run. Check exactly how your firm defines it, and use the calculator’s estimated drawdown to see whether your risk per trade leaves enough margin.
Practical takeaways
- Keep risk per trade small enough that a realistic losing streak does not threaten your limits.
- Judge a strategy by its drawdown as well as its return.
- Plan for the bad sequence, not the average one.
Try the numbers yourself
Run the Monte Carlo drawdown simulation.
Related guides
This guide is for education only. It is not financial advice or a trade recommendation, and trading involves substantial risk of loss. See the Terms of Service.