Drawdown depth
Why losses hurt more than gains help, and how deep the holes get. · 5 min
Decide first
A drawdown is the fall from a running peak to a later low. Getting back takes a bigger percentage gain than the loss, because the gain works on a smaller balance:
| Drawdown | 10% | 20% | 30% | 50% | 75% |
|---|---|---|---|---|---|
| Gain to recover | 11.1% | 25% | 42.9% | 100% | 300% |
Small drawdowns are cheap to recover; deep ones are not. Past 50% the recovery needs more than a doubling, which at +0.2R per trade and 1% risk takes about 367 trades for the median trader. That asymmetry is why sizing aims first at keeping drawdowns shallow, and only then at growth.
Losing streaks and drawdowns
Expect a worst streak of about 6.0 losses in a row
| Losses in a row | Chance in 100 trades | Drawdown at 2% risk | Gain needed to recover |
|---|---|---|---|
| 3 | >99.9% | 5.9% | 6.2% |
| 5 | 81.0% | 9.6% | 10.6% |
| 7 | 31.8% | 13.2% | 15.2% |
| 10 | 4.4% | 18.3% | 22.4% |
A 50% win rate has better-than-even odds of six losses in a row somewhere in 100 trades. Size so that such a streak is survivable.
Worked example: a compounded streak
- Risk 2% per trade, ten losses in a row.
- 0.98¹⁰ = 0.8171: the drawdown is 18.3%.
- Gain to recover: 1 ÷ 0.8171 − 1 = 22.4%.
- At +0.2R per trade and 2% risk the median account grows 0.36% per trade: about 57 trades to climb out.
Common mistake: adding percentages
Down 20%, up 20% is not break-even: 0.8 × 1.2 = 0.96, still 4% down. Percent gains and losses multiply. Always convert to the balance before reasoning about recovery.
Check yourself
- An equity path (start 100): 100 → 110 → 104.5 → 115 → 126.4 → 120.1 → 114.1. What is its maximum drawdown?
- The account is 20% below its peak. What gain gets it back?
- At 1% risk per trade, 6 straight losses. What is the drawdown, and the gain needed to recover?
Closing round
Play a bear-market round and read the max drawdown in the review. What gain would recover it?
Play the round in the simulator →The simulator's markets are generated, not real prices; the round practises the arithmetic, it does not predict anything.
Further reading: Tharp, Trade Your Way to Financial Freedom. The lesson teaches the idea in its own words and exercises.