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Drawdown recovery calculator

A 50% loss is not a 50% recovery — it's a 100% recovery. The math of drawdown is asymmetric and brutal. Plug in your DD, see what it'll cost to claw back.

Return needed to recover
—
Account after DD (from $10,000)—
Months at 2%/mo to recover—
Months at 5%/mo to recover—

The math of drawdown is brutal

Required return = 1 / (1 − DD) − 1. Lose 10% → need +11.1% to recover. Lose 20% → need +25%. Lose 50% → need +100%. Lose 75% → need +300%. The curve accelerates dangerously past 20%.

Reference table

  • 5% DD → 5.3% recovery
  • 10% DD → 11.1%
  • 20% DD → 25.0%
  • 30% DD → 42.9%
  • 50% DD → 100%
  • 75% DD → 300%
The 20% rule: Serious algo traders cap peak-to-trough drawdown at 20%. Past 20%, recovery requires taking more risk — which often creates deeper drawdown, which requires more risk. That loop kills accounts.

How to prevent deep drawdowns

  1. Fixed-fractional sizing — position size shrinks with equity, so a drawdown can't snowball.
  2. Daily loss cap — hard stop at 3-5% daily loss; come back tomorrow.
  3. Correlation controls — don't let a 3-EA portfolio double-up on the same risk factor.
  4. Equity kill-switch — pause all EAs if equity hits a pre-declared floor.

Related

Frequently asked questions

Why does a 50% drawdown need 100% to recover?

Because you're working with a smaller base. Starting at $10k, a 50% DD leaves $5k. To get back to $10k, $5k must double — that's +100%.

What's an acceptable max drawdown for an EA?

Rule of thumb: aim for DD < 2x expected annual return. A 30% CAGR EA with <15% DD is world-class; <25% is acceptable; >30% is usually hiding leverage risk.

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