Why does a 50% loss need a 100% gain to recover?

Because the gain is measured from the smaller base. $10,000 that falls 50% is $5,000, and $5,000 has to double to get back to $10,000. The deeper the hole, the steeper the climb: 10% needs 11.1%, 25% needs 33.3%, 75% needs 300%.

What is maximum drawdown?

The largest peak-to-trough fall in an account or strategy over a period, measured in percent of the peak. It answers the question every trader eventually asks: what is the worst stretch I would have had to sit through. A strategy with a 40% maximum drawdown will, at some point, show you 40% less than your high-water mark.

What is an acceptable drawdown for a trading account?

Whatever you can keep trading through without changing the rules. For most people that is well under 20%. Past that, the recovery math gets steep and the urge to take bigger risks to get back to even starts, which is how a drawdown becomes a blown account. A daily loss limit and a cap on open risk are the two settings that keep drawdowns in that range.

How do I use the equity curve box?

Paste your account balance at regular points in time, one per line or separated by commas, oldest first. Monthly statements, weekly screenshots or a trade-by-trade running balance all work. The tool finds the high-water mark, the deepest fall from it, where you sit now, and the longest stretch spent below a previous high.

Free Tool

Drawdown calculator

Gain needed to recover = loss / (1 minus loss). A 20% drawdown needs a 25% gain to get back to even, a 50% drawdown needs 100%. Paste your account balances below and the tool finds your maximum drawdown and how far you sit from your high-water mark.

Recovery from a loss

Drawdown%How far the account has fallen from its high.Balance at the high (optional)$To see the dollar amounts.

Loss	Gain to recover
5%	5.3%
10%	11.1%
15%	17.6%
20%	25.0%
25%	33.3%
30%	42.9%
40%	66.7%
50%	100.0%
60%	150.0%
75%	300.0%

Result

25.0% to recover

A 20.0% fall takes $10,000.00 to $8,000.00. Getting back to $10,000.00 is a 25.0% gain on what is left.

Balance at the high: $10,000.00
Balance after the drawdown: $8,000.00
Dollars to recover: $2,000.00
Gain needed on what is left: 25.0%

Under 20% the climb back is manageable. The point of a daily loss limit is to keep every bad stretch in this range.

Your equity curve

Account balances, oldest firstOne per line or separated by commas. Monthly statement balances work well. Nothing you paste leaves your browser.

Result

Max drawdown 10.6%

From $10,400.00 (point 2) to $9,300.00 (point 4). You are at a new high.

Points: 10
High-water mark: $11,800.00
Maximum drawdown: 10.6%
Current drawdown: 0.0%
Gain to reach the high again: 0.0%
Longest stretch below a high: 3 points
Change, first to last: 18.0%

Why the recovery math is asymmetric

Losses and gains are percentages of different numbers. A loss is a percentage of what you had; the gain to recover is a percentage of what is left. At small sizes the two are close, a 5% loss needs a 5.3% gain. At large sizes they separate fast, and that separation is the single best argument for keeping losses small.

Formula

gain to recover = loss / (1 - loss)

max drawdown = max over time of (peak so far - value) / peak so far

current drawdown = (high-water mark - latest) / high-water mark

Maximum drawdown is the number to look at when judging any strategy, including your own. Two traders can finish a year up the same amount with one of them having sat through a 45% hole in the middle. Only one of those years is repeatable, because only one of them is survivable in a worse year.

Keeping drawdowns shallow

Three rules do most of the work. A daily loss limit that stops trading for the day after a set loss, so a bad morning cannot become a bad month. A cap on open risk, the total that all open positions could lose at their stops, so five good-looking trades cannot add up to one disaster. And a fixed risk per trade, from the position size calculator, so no single trade decides the year.

Done for you

JorgAI has a daily loss limit and a circuit breaker built in.

Set the most you are willing to lose in a day and a cap on open positions. When the limit is hit, the auto-trader stops placing trades until the next session and tells you why. Every open position keeps its stop-loss. The rules hold on the days you would not.

Set up your rules 5 risk management strategies every trader should know

Free to start. A two-minute setup quiz builds your rules. Your money stays in your own brokerage account.

Questions people ask

Why does a 50% loss need a 100% gain to recover?: Because the gain is measured from the smaller base. $10,000 that falls 50% is $5,000, and $5,000 has to double to get back to $10,000. The deeper the hole, the steeper the climb: 10% needs 11.1%, 25% needs 33.3%, 75% needs 300%.
What is maximum drawdown?: The largest peak-to-trough fall in an account or strategy over a period, measured in percent of the peak. It answers the question every trader eventually asks: what is the worst stretch I would have had to sit through. A strategy with a 40% maximum drawdown will, at some point, show you 40% less than your high-water mark.
What is an acceptable drawdown for a trading account?: Whatever you can keep trading through without changing the rules. For most people that is well under 20%. Past that, the recovery math gets steep and the urge to take bigger risks to get back to even starts, which is how a drawdown becomes a blown account. A daily loss limit and a cap on open risk are the two settings that keep drawdowns in that range.
How do I use the equity curve box?: Paste your account balance at regular points in time, one per line or separated by commas, oldest first. Monthly statements, weekly screenshots or a trade-by-trade running balance all work. The tool finds the high-water mark, the deepest fall from it, where you sit now, and the longest stretch spent below a previous high.

Keep reading

These tools are for education. They do not know your account, your taxes or your broker's exact fees, and nothing here is investment advice. Trading involves risk of loss.

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