Drawdown Recovery: The Formula, Table and Time to Get Back to Breakeven
Drawdown recovery is the gain you need to climb from your account's low back to its previous peak. It is always bigger than the loss, because you earn it on a smaller balance: required gain = drawdown ÷ (1 − drawdown). A 10% drawdown needs 11%, a 50% drawdown needs 100%. At 2% a month, a 20% drawdown takes about 12 months to recover and a 50% drawdown about 36.
This gap is why the size of your losses matters more than the size of your wins. Knowing it lets you pick a risk per trade that keeps a losing streak small enough to recover from.
What a drawdown is and when it ends
A drawdown is the fall in your account's value from a peak to the lowest point that follows it. You write it as a percentage of that peak. It covers the whole slide from top to bottom, not just the loss on one trade.
A drawdown only ends, and its depth is only confirmed, when the account climbs back above the old peak. Until that happens, a new low can still make it deeper. The recovery period is the time it takes to get from that low back to the old peak.
Measure it on equity, not balance. Equity includes the floating profit or loss of every open position, so a trade sitting deep in the red counts before you close it.
The figures in this example, and in the sections that reuse it, are illustrative. Say your account peaks at $10,000, slides to $8,000, then climbs back. The chart below shows that path. Notice that the climb back covers the same $2,000, but as a percentage it is bigger.
The drawdown recovery formula
Write the drawdown as a decimal, so 20% becomes 0.20. Then:
Required gain = D ÷ (1 − D)
The extra 5% is not a fee or a cost. It is simply what happens when you work out a percentage on a smaller number. The deeper the drawdown, the faster this gap grows.
Here is why it works. After a loss of D, you hold (1 − D) of your old peak. To get back to the full peak, you have to multiply what's left by 1 ÷ (1 − D). Take 1 away from that and you get the gain, which simplifies to D ÷ (1 − D).
In plain words, the loss is measured against the peak and the recovery is measured against what's left. It is the same amount of money, but the base is smaller, so the percentage is bigger. In a spreadsheet, put the drawdown in cell A1 as a decimal and type =A1/(1-A1).
Drawdown recovery table: the gain each loss needs
Each row applies the same formula. The middle column shows what's left of a $10,000 peak, so you can check every row yourself: $10,000 minus that balance, divided by that balance.
| Drawdown | Balance left (from $10,000) | Gain needed to recover |
|---|---|---|
| 5% | $9,500 | 5.3% |
| 10% | $9,000 | 11.1% |
| 15% | $8,500 | 17.6% |
| 20% | $8,000 | 25.0% |
| 25% | $7,500 | 33.3% |
| 30% | $7,000 | 42.9% |
| 40% | $6,000 | 66.7% |
| 50% | $5,000 | 100% |
| 60% | $4,000 | 150% |
| 70% | $3,000 | 233.3% |
| 80% | $2,000 | 400% |
| 90% | $1,000 | 900% |
Read down the table. Up to about 20%, the gain you need is close to the loss. Beyond about 40%, the numbers bend sharply, and each extra 10% of loss adds much more to the climb back.
The numbers line up with how drawdowns feel. Around 15% is uncomfortable but manageable. Around 40% puts real strain on your confidence and discipline. Around 60% can be deep enough to end an account, however good the strategy's long-run return is. At 40% you need +66.7%, two-thirds more than you have left, so treat it as the line where recovery stops being routine.
Drawdown recovery time: how many months to get back
The table shows how far you have to climb. How long the climb takes depends on how fast your account grows. If you compound an average monthly return, start at 1 and keep multiplying by (1 + monthly return), once per month, until you pass 1 ÷ (1 − D). The number of multiplications is the number of months.
The monthly returns below are inputs for the maths, not typical results.
| Drawdown | At 1% a month | At 2% a month | At 4% a month |
|---|---|---|---|
| 10% | 11 months | 6 months | 3 months |
| 20% | 23 months | 12 months | 6 months |
| 30% | 36 months | 19 months | 10 months |
| 50% | 70 months | 36 months | 18 months |
Take the same example's 20% drawdown, and suppose your method averages 2% a month. You need to grow by 1 ÷ 0.80 = 1.25 times. Check: 1.02 multiplied 11 times is about 1.243 (not enough), and 12 times is about 1.268 (past 1.25). So the climb takes 12 months.
If you prefer a formula, with r as the monthly return in decimal form: months = ln(1 ÷ (1 − D)) ÷ ln(1 + r), rounded up, or =LN(1/(1-D))/LN(1+r) in a spreadsheet.
This is the best case. It assumes your edge still works and there are no new losses during the climb. Real returns are uneven, and every new loss pushes the finish line further away. If your honest monthly figure is small, a 30% hole can take years to fill.
How your risk per trade sets how deep a drawdown goes
A drawdown is usually built from a run of losing trades. Your risk per trade is the share of your current balance you lose if the stop is hit. If you risk the same percentage of your current balance on every trade, a run of N losses in a row leaves a drawdown of:
Drawdown = 1 − (1 − risk per trade)^N
Here is a streak of 10 losses in a row from a $10,000 peak at different risk levels:
| Risk per trade | Balance after 10 losses | Drawdown | Gain needed |
|---|---|---|---|
| 1% | $9,044 | 9.6% | 10.6% |
| 2% | $8,171 | 18.3% | 22.4% |
| 5% | $5,987 | 40.1% | 67.0% |
| 10% | $3,487 | 65.1% | 186.8% |
The chart below shows those four paths, one loss at a time. They all start at the same $10,000 peak and take the same 10 losses.
The same 10-trade streak can be a bad week or the end of the account. The only thing that changes is the risk you chose. Even at 2%, the gap is still there: after those 10 losses, you need 11 winners in a row, each making 2% (a 1:1 reward-to-risk), to get back to $10,000. That's because 1.02 multiplied 10 times is about 1.219, which falls short of the 1.224 you need.
Your risk in money comes from your position size and your stop-loss distance (how far your stop sits from your entry). If you keep the same risk percentage and use a wider stop, your position has to be smaller. When people say "lower your leverage", this is what they mean in practice: trade a smaller position compared with your account, so each loss takes a smaller bite.
A rule you can copy: decide the deepest drawdown you could sit through calmly, pick a streak length longer than the worst one in your own testing, and solve the formula for your risk. For example, if you want a 10-loss streak to cost you no more than about 15%, a risk of 1.5% per trade gives 1 − 0.985^10 ≈ 14.0%.
A drawdown playbook with if-then rules
Rules you write down before a drawdown work much better than decisions you make in the middle of one. The flow below uses 10% and 20% as example lines. Set your own lines to suit the depth you worked out above.
- 1Track equity from peakCount floating losses too
- 2Down 10%: halve riskSame setups, smaller size
- 3Down 20%: stop tradingNo new trades until reviewed
- 4Review the losersNormal variance or broken rules?
- 5Restart at half sizeFull size once you have won back half the drawdown (e.g. back to $9,000 from $8,000)
The review step answers one question: were these normal losses or mistakes? If the losses look like what your testing showed, with the same setups and the same stops, it is variance, and smaller size is enough. If you broke rules, made trades bigger than planned, or traded outside your plan, fix the behaviour before the size comes back.
Cutting size has a real cost. In the time table, recovering 20% takes 12 months at 2% a month but 23 months at 1%. You accept that slower climb because it keeps you out of the 40% to 60% zone, where the maths turns against you.
Mistakes that turn a drawdown into a blown account
Doubling size to win it back. In the same example, you are down 20% at $8,000 and you double your risk to 4%. Five more losses then leave $8,000 × 0.96^5 ≈ $6,523. You are now 34.8% below the peak and need a 53.3% gain. Bigger size grows the hole faster than it grows the hoped-for win.
Watching balance instead of equity. If you hold losing trades open, your balance looks fine while your equity is already deep in drawdown. Your loss lines should trigger on equity.
Reading the wrong drawdown number in a backtest. Some backtest reports show two figures. Maximal drawdown is the largest peak-to-low drop, written as a percentage of the peak it fell from. Absolute drawdown is the starting deposit minus the lowest balance the account reached. Say a test starts at $10,000, rises to $15,000, then drops to $9,500. Absolute drawdown is only $500, but maximal drawdown is $5,500, or 36.7% of the $15,000 peak. Plan around the maximal figure.
Judging a strategy by its return alone. A year that ends up 80% can still include a 60% fall along the way. A headline return tells you nothing about the drop you would have had to sit through. Always ask for the maximum drawdown next to the return.
Treating the worst backtest drawdown as the worst possible. A backtest is one path through history, and the future can produce a longer streak. A cautious habit is to size your trades so you could survive a drawdown clearly deeper than the one your test showed.
FAQ
Can I open the opposite trade to recover a losing position?
No. A buy and a sell of the same size on the same pair cancel each other out, so the loss is locked in, not recovered. You still pay spread and possibly overnight costs on both, and you still have to decide later which side to close. Closing the loser at your stop does the same job more cheaply.
How long should I backtest before I trust the drawdown figure?
Count the losing streaks in your test. If the longest one appears only once, the test is too short to trust; keep extending it until similar streaks show up more than once and the maximum drawdown stops growing. Make sure the test also covers different market conditions, such as trending, ranging, quiet and volatile periods. Even after a long test, treat the maximum drawdown as a minimum to plan for, not a ceiling.
How should I handle a drawdown limit on a funded challenge account?
First check how the limit is measured: from the starting balance or trailing your peak, and on balance or equity. Then turn the room you have left into a number of losing trades. For example, if you have $1,000 of room and risk $250 per trade, four losses in a row end the account. If that streak count is shorter than the streaks you've seen in testing, cut your risk per trade until it isn't.
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