Drawdown Recovery Calculator
Explore why the percentage return required to recover from a drawdown increases non-linearly with the size of the loss.
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How this tool works
Explore why the percentage return required to recover from a drawdown increases non-linearly with the size of the loss. Inputs should represent your own assumptions, current instrument specifications and account denomination; no automatic market-data feed is used unless the page explicitly states otherwise.
Required recovery gain (%) = [drawdown fraction ÷ (1 − drawdown fraction)] × 100.
Worked example
A 20% drawdown requires a 25% gain from the reduced account equity to return to the original level.
What to check before relying on a result
Check the direction of the trade, units and currency, market contract specifications, realistic spreads and slippage, execution conditions, any applicable taxes and fees, and whether the assumed model fits your instrument. A calculator does not eliminate market risk.
Frequently asked questions
Why is recovery larger than the loss percentage?
The recovery return is measured against a smaller capital base after the loss.
Is drawdown the same as a losing trade?
Not always. Portfolio drawdown is ordinarily measured from a prior equity high to a subsequent low.
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To recover a percentage drawdown, divide the loss fraction by the remaining equity fraction. A 20% loss leaves 80% of the starting capital, requiring a 25% gain on that smaller base to break even. The recovery relationship becomes increasingly nonlinear as losses deepen.
How to use this calculator correctly
- Step 1. Enter the capital amount before the loss and the drawdown percentage.
- Step 2. Check the remaining equity and the exact percentage return required to recover the initial balance.
- Step 3. Model repeated percentage losses, which compound against the reduced equity after each loss.
- Step 4. Compare the recovery burden with risk-per-trade limits before using leverage.
Worked comparisons
These are illustrative arithmetic examples, not forecasts or market quotations. They help show how changing one input affects the result.
| Drawdown from prior equity high | Equity remaining from £10,000 | Required gain to recover |
|---|---|---|
| 10% | £9,000 | 11.1% |
| 20% | £8,000 | 25.0% |
| 40% | £6,000 | 66.7% |
| 50% | £5,000 | 100.0% |
How to interpret the results
Drawdown typically describes the peak-to-trough decline in a portfolio's equity curve. It differs from a single losing transaction or from money temporarily invested at a lower market price. Maximum drawdown captures the largest historical peak-to-trough decline over an observation period, and the observed statistic may not represent the worst future outcome. Profitability and recovery speed depend on future prices and strategy execution rather than arithmetic alone.
Common mistakes and limitations
- Use the same start and ending equity valuation basis; account for deposits and withdrawals separately.
- Distinguish percentage of equity lost from percentage of original capital lost after multiple trades.
- Do not assume that increasing position size during recovery will restore equity safely; it also increases downside exposure.
Further questions
Why does a 50% loss need a 100% gain?
A £10,000 account falling to £5,000 must gain another £5,000, equal to 100% of the remaining £5,000.
Can a drawdown exceed 100%?
In leveraged trading losses can exceed deposited funds in some circumstances, but percentage recovery becomes undefined once equity reaches zero or below.
Is maximum drawdown a complete measure of risk?
No. It omits the path before the largest loss and does not fully measure tail events, liquidity or future changes in risk.
Related Traders MBA learning
Explore the methodology and related calculations in these directly relevant resources:
Figures are illustrative and depend on input assumptions. This material provides general education, not financial advice, trading signals or a forecast. Verify instruments, exchange or broker terms and execution costs before relying on a calculation.