The asymmetry nobody feels until it happens
Say an account falls from 10,000 to 8,000. That is a 20% loss. To get back to 10,000 it has to grow from 8,000, and 2,000 on top of 8,000 is 25%. The loss and the gain are measured against different starting points, so they are never equal.
The formula is short: gain needed = 1 / (1 - loss) - 1, with the loss written as a fraction. A 20% loss is 0.20, so 1 / 0.80 - 1 = 0.25. Everything else in this lesson follows from that one line.
The gain needed to get back to even
Percent gain required after each size of loss
| Loss | Account left (from 10,000) | Gain needed to recover |
|---|---|---|
| -10% | $9,000 | +11.1% |
| -20% | $8,000 | +25.0% |
| -30% | $7,000 | +42.9% |
| -40% | $6,000 | +66.7% |
| -50% | $5,000 | +100.0% |
| -60% | $4,000 | +150.0% |
| -70% | $3,000 | +233.3% |
| -80% | $2,000 | +400.0% |
Why this changes how you trade
- Small drawdowns are cheap, big ones are expensive. A 10% drawdown needs about 11% to repair. A 40% drawdown needs about 67%, which can take years.
- Surviving matters more than winning big. An account that never falls below -20% can use almost every good year it gets. An account that falls -50% spends its next good years only getting back to start.
- Position size is the control. You cannot control whether the next trade wins, but you can control how much one loss costs. See position sizing and risk of ruin.
A practical rule of thumb
Decide in advance the worst drawdown you can live with, in percent, and write it down. Then work backwards: with a given risk per trade, how many losses in a row would reach that number? If five losses in a row would do it, you are sized too big for that tolerance. Many traders find this the most useful single question in risk management.
Frequently asked questions
How much do I need to gain after a 30% loss?
About 42.9%. The formula is 1 / (1 - 0.30) - 1, which is 0.4286.
Is a 20% drawdown normal for a trading robot?
It depends on the strategy and the risk settings, which is why a robot's maximum drawdown should always be read next to its returns and its time period. A drawdown you cannot tolerate is too big for you, whatever the average.
Does this apply to profits too?
Yes, the same asymmetry works in reverse: percent changes compound, so a +25% year followed by a -20% year leaves you exactly where you started.
Sources and method
- Standard risk-management and statistics formulas. Every example in this lesson uses made-up round numbers to show how the maths works; none of them is a result or a forecast.