Free Trading School · Level 12: Advanced Risk, Testing and Going Live
Drawdowns and the maths of recovery
A drawdown is the fall from an account's peak to its lowest point before a new peak. Every trader has them. The danger is that losses and gains are not symmetrical: the deeper the hole, the harder it is to climb out.
| Drawdown | Gain needed to recover |
|---|---|
| 10% | 11% |
| 20% | 25% |
| 30% | 43% |
| 50% | 100% |
| 75% | 300% |
This is why professionals cut risk during drawdowns. A common rule is to halve the risk per trade after a 10% drawdown and pause trading after 20% to review what went wrong.
Protecting capital comes before growing it. Small drawdowns are recoverable; large ones often are not.
Quick answers
A drawdown is the fall from an account's peak to its lowest point before a new peak. Every trader has them. The danger is that losses and gains are not symmetrical: the deeper the hole, the harder it is to climb out.
Protecting capital comes before growing it. Small drawdowns are recoverable; large ones often are not.
100%. Half the account has to double to return to the start.
Next lesson: Expectancy: does your strategy have an edge?