Drawdown recovery: why a 50% loss needs a 100% gain
Percentage losses and recovery gains use different starting values. An account falling from $10,000 to $5,000 loses 50%. Returning from $5,000 to $10,000 requires a 100% gain. There is no symmetry because the denominator changed.
| Loss | Balance left | Gain to recover |
|---|---|---|
| 10% | $9,000 | 11.11% |
| 20% | $8,000 | 25% |
| 30% | $7,000 | 42.86% |
The general recovery calculation is loss fraction divided by one minus that fraction. Express the result as a percentage. It describes the required change in the remaining capital, not the probability of achieving it.
Measure the account consistently
Drawdown is the fall from a prior equity peak to a subsequent trough. A list of closed trades can miss losses on open positions. Mark-to-market account equity includes them.
Depositing $5,000 into the damaged account can restore the balance to $10,000 without recovering the investment loss. Track external cash flows separately. Otherwise performance and drawdown measurements become misleading.
Use the same account currency and valuation time in your review. A weekly snapshot can miss a deeper intraday trough, so describe the frequency of your observations.
After a drawdown, doubling the next position changes the exposure. It does not alter the recovery arithmetic or improve the evidence behind the trade. Recalculate possible loss using the capital that remains, including open positions and immediate cash obligations.