Drawdown Recovery Math: A Worked Example With Two Traders

Ten losing trades in a row sounds like something that happens to other people. Trade long enough with any strategy that loses some of the time, and a streak like that is something to plan for, not something to hope you avoid.

The streak isn't what decides whether you're still trading next year. The size of each loss is. Here's the math, worked through with two hypothetical traders, the same account and the same bad run.

The Formula You Need

A drawdown is the drop from your account's peak to its low point, measured in percent. Getting back to the peak takes a bigger gain than the loss, because you're growing a smaller balance.

Gain needed to recover = drawdown ÷ (1 - drawdown).

• A 10% drawdown needs an 11.1% gain.
• A 20% drawdown needs 25%.
• A 30% drawdown needs 42.9%.
• A 50% drawdown needs 100%.

Each step deeper makes the climb steeper. Keep that curve in mind for everything below.

Same Streak, Two Risk Levels

Both traders start with $40,000. Both hit ten losing trades in a row. Both risk a fixed percentage of their current balance on every trade, so each loss is a little smaller in dollars than the one before.

Trader A risks 1% per trade. After ten losses, the account is at $36,175.28. That's a drawdown of 9.56%, and it takes a 10.57% gain to get back to $40,000.

Trader B risks 5% per trade. After the same ten losses, the account is at $23,949.48. That's a drawdown of 40.13%, and it takes a 67.02% gain to get back.

Same number of losing trades. Same setups, same luck. One account is bruised, the other has lost two-fifths of its value.

Measured in trades, the climb back can look similar. Six straight winners of +2R would put either trader back above $40,000. The difference is what happens if the streak isn't finished yet.

Add four more losses before those winners show up. Trader A, now fourteen losses deep, is at $34,749.83, down 13.13% and needing a 15.11% gain. Trader B is at $19,507.00, down 51.23% and needing a 105.05% gain just to get back to where both traders started.

How Many Losses Until Half The Account Is Gone

Here's another way to see the same math. Count how many losses in a row it takes to cut the account in half at each risk level:

• At 1% per trade: 69 losses.
• At 2% per trade: 35 losses.
• At 5% per trade: 14 losses.
• At 10% per trade: 7 losses.

And to reach a 20% drawdown:

• At 1% per trade: 23 losses.
• At 2% per trade: 12 losses.
• At 5% per trade: 5 losses.
• At 10% per trade: 3 losses.

Five losses in a row can happen to any strategy, including one with a real edge. At 5% risk, those five losses leave a 22.6% drawdown that needs a 29.2% gain to fill. At 1% risk, the same five losses cost 4.9%.

The Slow Leak Of A Big Risk Number

Big risk hurts even when you're not on a losing streak. Take a run of trades that's a perfect tie: 50 wins of +1R and 50 losses of -1R, in any order.

On $40,000, Trader A ends at $39,800.49, down about 0.5%. Trader B ends at $35,294.35, down about 11.8%. Every win is a percentage of a balance that a loss already shrank, and the bigger the percentage, the bigger the leak. Trader B's tie costs over 23 times as much as Trader A's.

Your strategy's edge has to cover that leak before it pays you anything. A small risk number keeps the leak small.

Pick A Risk Number You Can Survive

Run this before your next trade, not after your next streak:

• Write down your current risk per trade as a percentage.
• Count how many losses in a row would take you to a 20% drawdown at that number, using the lists above.
• Ask yourself honestly whether you'd keep following your plan at that point. If the answer is no, cut the risk number.
• Add a rule to your plan for drawdowns, for example, risk drops to half once the account is 10% below its peak, and returns to normal only at a new high.

Then make sure every trade actually risks what you think it does. Our step-by-step guide to calculating position size from your stop turns that percentage into an exact share count, and the risk-first lesson explains why the number should be small enough to live through ten losses in a row.

Join The Pod and know your losing-streak math before the streak shows up. The Drawdown Recovery Calculator shows the gain you need to climb back from any loss, the Risk-Reward And Expectancy Calculator shows how likely a losing streak is for your win rate, and Lesson 11's money rules turn a survivable risk number into a habit. Join The Pod monthly and choose a risk level your account can live with.