-$2,000
Capital remaining $8,000
Why recovery gets harder
After a loss, the account has a smaller capital base. If $10,000 falls 20% to $8,000, recovering the lost $2,000 requires a 25% gain on $8,000.
| Drawdown | Gain required to recover |
|---|---|
| -5% | +5.26% |
| -10% | +11.11% |
| -15% | +17.65% |
| -20% | +25.00% |
| -25% | +33.33% |
| -30% | +42.86% |
| -40% | +66.67% |
| -50% | +100.00% |
| -60% | +150.00% |
| -75% | +300.00% |
| -90% | +900.00% |
The relationship is not symmetrical
A 10% loss requires an 11.11% recovery, a 30% loss requires 42.86%, and a 50% loss requires 100%. At a 75% drawdown, the remaining capital must gain 300% simply to return to the starting value.
Why this matters for automated trading
High monthly returns can look compelling, but the return number should be evaluated alongside the drawdown required to produce it. A strategy that compounds strongly during profitable periods can still suffer a setback that takes many profitable months to repair.
What is a good drawdown for a trading bot? →
Amplification makes drawdown more important
When a programme amplifies the economic effect of an underlying strategy, a relatively small strategy loss can become a much larger loss relative to contributed capital. That is why projected upside should always be stress-tested using the same amplification assumptions.
Understand amplification vs leverage →
From recovery mathematics to product research
When reviewing a live automated strategy, look at its historical maximum drawdown, track-record length and return together. Historical drawdown is useful evidence, but it is not a guaranteed future loss limit.