JustChartsWhat Is Drawdown in Trading? Maximum Drawdown and Recovery Math
Drawdown is the decline in your account from its highest point to a later low, usually shown as a percentage. Maximum drawdown is the largest such fall over a period. Drawdowns are costly because recovery is not symmetrical: after a 20% loss you need a 25% gain to get back to even, and after a 50% loss you need 100%.
Key facts
- Drawdown
- (peak − trough) ÷ peak
- Lose 10%
- need +11.1% to recover
- Lose 25%
- need +33.3%
- Lose 50%
- need +100%
- Lose 75%
- need +300%
How to calculate drawdown
Drawdown % = (peak equity − lowest equity after the peak) ÷ peak equity × 100
Example: your account grows to $12,000, then falls to $9,000 before making a new high. The drawdown is (12,000 − 9,000) ÷ 12,000 = 25%.
The recovery problem
| Drawdown | Gain needed to recover |
|---|---|
| 5% | 5.3% |
| 10% | 11.1% |
| 20% | 25% |
| 30% | 42.9% |
| 50% | 100% |
| 75% | 300% |
| 90% | 900% |
Gain needed = drawdown ÷ (1 − drawdown)
Small drawdowns are easy to recover from; large ones can end a trading career. That is why risk per trade matters more than any single winning trade.
How risk per trade drives drawdown
Every strategy has losing streaks. Ten losses in a row costs about 10% at 1% risk per trade, about 18% at 2%, and about 40% at 5% (because each loss is a percentage of a shrinking balance). See the 1% rule.
Ways to limit drawdown
- Risk a small, fixed percentage per trade and use a stop-loss every time.
- Set a daily or weekly loss limit and stop trading when it is hit.
- Reduce size during losing streaks instead of increasing it.
- Avoid correlated positions that all lose at once (for example several USD pairs in the same direction).
Proprietary-trading firm challenges often enforce limits such as a 5% daily and 10% overall drawdown — a useful benchmark even for personal accounts.
Frequently asked questions
What is a good maximum drawdown?
It depends on the strategy, but many professional traders aim to keep maximum drawdown below about 20%, and many prop-firm rules cap it at around 10%.
How much do I need to gain after a 50% loss?
100%. Half of the original balance has to double to get back to where you started.
What is the difference between drawdown and loss?
A loss is the result of one trade. Drawdown measures the total decline in the account from its peak, which can include many losing trades.
Put it into practice
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Use the position size calculatorThis article is for education only and is not financial advice. Trading leveraged products carries a high risk of losing money. Contract sizes, trading hours and leverage limits vary by broker and country — always check your own broker’s specifications.