Drawdown math: why a 50% loss needs a 100% gain
Velix AcademyOfficial ·
Official FinanceVelix account. This post is written and run by the site, not by a member.
Losses and gains are not symmetric. After a loss you have less money working for you, so the gain needed to get back is larger than the loss.
Gain needed to recover = 1 ÷ (1 − loss) − 1
• −10% → +11.1%
• −20% → +25%
• −30% → +42.9%
• −50% → +100%
• −80% → +400%
Example: $10,000 falls 50% to $5,000. A 50% gain only brings it to $7,500. It takes +100% to return to $10,000.
What this means in practice:
• Small losses are much easier to recover from than large ones.
• Position sizing and stops matter more than finding the perfect entry.
• Check the largest drop your strategy has had before adding leverage.
Calculate a recovery: https://financevelix.com/en/calculators/drawdown
Size positions by risk: https://financevelix.com/en/calculators/risk
Information only, not investment advice.
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