A 50% loss does not need a 50% gain to fix. It needs 100%. That gap — between what you lost and what it takes to get back — is the most under-appreciated arithmetic in trading.
Why does it take a bigger gain to recover a loss?
Because you rebuild from a smaller base. After a loss, every percentage gain applies to less money than you started with. The formula is exact: required gain = L ÷ (1 − L), where L is the percentage lost. Lose 10% and you need 11.1%; lose 50% and you need 100% just to return to even.
The recovery table
| Drawdown | Gain needed to break even | Reality check |
|---|---|---|
| -5% | +5.3% | A normal week |
| -10% | +11.1% | Still routine |
| -20% | +25% | Now it stings |
| -25% | +33.3% | Losing ground fast |
| -50% | +100% | You must double to get back to start |
| -75% | +300% | Realistically finished |
| -90% | +900% | Effectively unrecoverable |
This is arithmetic, not opinion — it applies to every account, every strategy, every market. The curve is gentle on the left and vertical on the right, and traders discover the steep part only after they're standing on it.
What this changes about how you trade
Once you accept the shape of that curve, several habits stop being optional:
- Small, fixed risk per trade. Staying on the flat part of the curve is worth more than any entry technique. See how much to risk per trade.
- Hard loss limits. Daily and weekly stop-trading thresholds exist to end bad days before they become bad quarters.
- No averaging into losers. Adding to a losing position converts a manageable loss into a tail risk.
- Treat correlated positions as one bet. Five trades on the same theme can produce a single, large drawdown.
The psychological trap on the way down
Deep drawdowns don't just cost money; they change behaviour. Down 30%, the mathematically sensible move is to reduce size and grind. The instinctive move is to size up to "make it back faster" — which increases the chance of reaching the vertical part of the curve. Nearly every account that goes to zero does it this way, not through one bad trade. If you notice this urge, read how to stop revenge trading.
Set your line in advance
Decide, while calm, the drawdown at which you stop and review: a percentage that triggers reduced size, and a deeper one that triggers a full stop and a written post-mortem. Numbers chosen in a quiet moment are the only ones you'll trust in a loud one. A trader who cuts size at −10% and halts at −20% has capped the damage at a level the curve still forgives.
Frequently asked questions
What is a normal drawdown? It depends entirely on strategy and risk per trade. What matters is whether your maximum drawdown stays inside the range you planned for and can psychologically tolerate.
How do I recover from a big drawdown? Reduce size, return to your written rules, and rebuild with a positive-expectancy process. Trying to recover quickly with bigger bets is what turns a recoverable loss into a terminal one.
Does this math apply to investing too? Yes — identically. It's one reason diversification and position limits matter in a long-term portfolio, not just in active trading.
Surviving long enough to compound is the whole game. The risk-first trading framework behind this article — risk units, sizing math, drawdown circuit breakers, and a written plan you actually follow — is the subject of our $29 Make Money guide (reg. $39).
Related: what expectancy really measures · Make Money guides.
This article is general education, not financial, investment, or tax advice, and it is not a recommendation to buy or sell anything. All figures are hypothetical and illustrate a method only. Investing and trading involve real risk of loss — use money you can afford to put at risk, and consult a licensed professional before acting.