Drawdown and Recovery: Why the Percentages Differ
A percentage loss uses the starting peak as its base. Recovery uses the smaller remaining value, so equal loss and gain percentages do not cancel out.
Calculate a decline from a peak
Drawdown = (peak − trough) / peak × 100%
If the selected series falls from 10,000 to 8,000, the decline is 2,000 / 10,000 = 20%. The peak must be positive for this percentage calculation. Keep the unit and observation basis unchanged.
Maximum drawdown is the largest such decline across a sequence of running peaks and subsequent troughs. Two endpoint values calculate one decline; they do not establish the maximum drawdown of an entire history.
Calculate the recovery requirement
Recovery gain = drawdown fraction / (1 − drawdown fraction) × 100%
| Drawdown | Remaining from 100 | Gain needed to regain 100 |
|---|---|---|
| 10% | 90 | 11.11% |
| 20% | 80 | 25% |
| 50% | 50 | 100% |
These are arithmetic examples. A 100% loss leaves no remaining base from which a finite percentage gain can recover the original amount. The calculation does not estimate how likely a recovery is or how long it would take.
Specify the equity series
Balance based only on completed trades can omit unrealised losses. Marked-to-market equity includes open-position changes according to the chosen valuation. The observation frequency matters too: daily observations can omit an intraday peak or trough.
Cash deposits and withdrawals also change an account value without being trading outcomes. State how those flows are handled before comparing drawdown values from different reports.
Use the result in a review
Inspect when a decline started, which positions overlapped and whether the plan changed during the sequence. Do not assume the largest historical decline is a limit on future losses. Use the calculator for a simple peak-to-trough example and the risk management reference for the measurement framework.
Questions about this topic
Does a 20% loss need a 20% gain to recover?
No. A decline from 100 to 80 is 20%, while returning from 80 to 100 requires a 25% gain.
Does the calculator find historical maximum drawdown?
It calculates one decline from the peak and trough you enter. Finding a full-series maximum requires the entire sequence.