How to use the drawdown recovery calculator
- Choose how you know the drawdown. Pick a percentage if you already have it, or two balances if you would rather enter your peak and your current balance and let the calculator work out the fall.
- Enter the drawdown, or the peak balance and the current balance in your account currency.
- Set an assumed monthly return. It is used only for the time to recover. Use a modest number: the default of 5% a month is already generous.
You get the gain needed to get back to the peak, the balance left, the money to win back (when you entered balances) and the months the climb takes. Two charts follow. The first shows why recovery gets harder the deeper you fall. The second draws your own fall and the climb back at the monthly return you chose.
The drawdown recovery formula
gain needed = 1 / (1 − drawdown) − 1
months to recover = ln(1 / (1 − drawdown)) / ln(1 + monthly return)
- drawdown is the fall from the peak as a fraction, so 20% is 0.20.
- gain needed is the percentage gain on the current balance that restores the peak.
- monthly return is the steady return you assume, as a fraction, compounded each month.
A fall of 20% leaves 80% of the peak. To get from 0.80 back to 1.00 you multiply by 1.25, which is a 25% gain. The time follows from compounding: the balance has to grow by a factor of 1 / (1 − drawdown), and each month multiplies it by 1 + monthly return, so the number of months is the ratio of the two logarithms.
Worked example
An account falls 20% from its peak. You assume it earns 5% a month on the way back.
These are the numbers the calculator opens with. With balances instead of a percentage the answer is the same: a peak of 10,000 and a current balance of 8,000 is a 20% drawdown, 2,000 to win back, and a gain of 25% on the 8,000 you have left.
Why recovery is harder than the loss
A loss and the gain that undoes it are measured on different balances. The loss is a percentage of the peak. The gain is a percentage of what is left, which is smaller, so the same money is a bigger percentage.
Lose 50% of 10,000 and you hold 5,000. Gaining 50% on 5,000 adds 2,500 and leaves 7,500, still short. You need the full 5,000, which is a 100% gain. The table shows how fast the demand grows.
Up to about 10% the two figures are close. After that the curve bends away from the line where gain equals loss, and beyond 50% it climbs steeply. The chart on this page plots exactly this, with 10%, 20%, 30%, 50% and 70% marked, and your own drawdown as a dot.
The same arithmetic explains why a gain and a loss of equal size do not cancel. A trade that makes 10% and then one that loses 10% leaves you at 99% of where you started, and +50% followed by −50% leaves 75%.
How long recovery takes
The gain needed is only half the story. The other half is time, and time depends on the return you can produce while you are climbing.
Even at 5% a month, which very few traders sustain, a 50% drawdown takes more than a year. At 2% a month it takes almost three years. During that time nothing new is earned: the account is only getting back to where it was.
That is the practical message. A drawdown is not only a loss of money, it is a loss of time. A 10% drawdown is a bad month. A 50% drawdown is a lost year or more even if everything goes right afterwards, and in real trading months do not arrive in a steady line. A single bad month in the climb sets it back again.
What to do with the number
Use the calculator before the drawdown, not only after it. Decide the deepest drawdown you are willing to let happen, look up the gain it would take to recover, and ask whether your system can realistically produce that. If not, the limit is too loose.
- Set a drawdown limit that is easy to recover from. A limit of 10% to 20% asks for a gain of 11% to 25%, which is within reach. A limit of 50% asks for a doubling.
- Size positions so a normal losing streak stays shallow. The position size calculator turns a risk per trade into a trade size, and the risk of ruin calculator shows how likely a deep drawdown is at that size.
- Watch the depth and the duration. Your equity curve shows both: how far each drawdown went and how long the curve took to make a new high.
- Remember the rules of a funded account. Some firms measure the limit from a trailing high, so the floor rises as the account makes new highs. Read your own firm's rules page, and see what trailing drawdown is.
To see what a slow, steady recovery does to an account over time, the compounding calculator draws the growth month by month, with deposits if you add them.
Common drawdown recovery mistakes
- Adding the percentages. A 30% loss does not need a 30% gain. It needs 42.86%.
- Measuring the drawdown from the wrong balance. The drawdown runs from the highest balance, not from where you started. If your account grew first and then fell, the peak is the high point.
- Raising risk to win it back faster. Bigger positions after a loss are the usual way a 20% drawdown becomes a 40% one. The gain needed rises faster than the loss.
- Assuming a steady return. Recovery is rarely a straight line. The time shown is the best case for the return you chose.
- Ignoring deposits and withdrawals. Money you add or take out changes the balance without being a gain or a loss. Judge the drawdown on trading results, not on the cash you moved.
- Forgetting costs. Commissions, spreads and slippage reduce the return you can count on during the climb.
What the calculator does not know
The calculator treats the drawdown as one fall from a single peak, and the recovery as a steady compounded monthly return with no deposits or withdrawals. Real recoveries are uneven: there are losing months on the way back, drawdowns inside drawdowns, and periods where the system simply does not work. It does not know your costs, your taxes or the rules of a funded-account programme. The monthly return is an assumption you supply, not a forecast, and a return of zero or less never recovers the peak, which the calculator reports as "Never". Nothing here is investment advice.
Frequently asked questions
How do you calculate the gain needed to recover from a drawdown?
Divide 1 by one minus the drawdown, then subtract 1. For a 20% drawdown that is 1 ÷ 0.80 − 1 = 0.25, so you need a 25% gain on the balance you have left. The calculator does this for any drawdown you enter.
Why does a 50% loss need a 100% gain?
Because the gain is earned on a smaller balance. If 10,000 falls 50% to 5,000, a 50% gain adds only 2,500 and leaves 7,500. You need to add the full 5,000, which is 100% of what you hold now.
How long does it take to recover from a drawdown?
It depends on the return you earn while recovering. The months equal ln(1 ÷ (1 − drawdown)) ÷ ln(1 + monthly return). A 20% drawdown takes about 4.57 months at a steady 5% a month and about 11.27 months at 2% a month.
What is a good maximum drawdown?
There is no single answer, but the recovery gain shows why shallow limits are safer. A 10% drawdown needs 11.11% to recover and a 20% drawdown needs 25%. A 50% drawdown needs 100%, which most systems cannot deliver quickly.
What is the formula for drawdown?
Drawdown is (peak balance − current balance) ÷ peak balance. A peak of 10,000 and a current balance of 8,000 give (10,000 − 8,000) ÷ 10,000 = 20%. Enter the two balances and the calculator works it out.
Is a 90% drawdown recoverable?
Mathematically yes, but it needs a 900% gain, a tenfold increase on the balance left. In practice almost no one recovers from it by trading alone. At a steady 5% a month it would still take about 47 months, nearly four years, and few accounts get a clean run like that.
Can I recover faster by increasing my risk?
Larger positions raise both the potential gain and the chance of a deeper loss. Because the gain needed grows faster than the drawdown, a second large loss makes the hole much deeper. Recovering faster by risking more is the usual way a manageable drawdown becomes an unrecoverable one.
Does the recovery gain change if I add money to the account?
Deposits raise the balance without being a trading gain, so they can hide a drawdown on a balance basis. To judge recovery, look at the trading result, for example your equity curve with deposits and withdrawals removed. Then compare it with the peak of that curve.
What monthly return should I assume for recovery?
Use a low, defensible number and test several. The table above shows 2%, 5% and 10% a month, and the higher ones are rarely sustained. If a recovery only works at a return you have never achieved, treat the drawdown as a much longer problem than the calculator suggests.