Risk management
How Long Does It Take to Recover From a Drawdown?
By MarketsBench · Published · Updated · 3 min read
Step 6 of 6 in Trading Foundations.
Losses and gains are not symmetrical. Losing 20% does not require making 20% back — it requires making 25%, because the gain is calculated on a smaller balance. The deeper the hole, the worse the asymmetry gets, and it gets worse fast.
The recovery formula
Gain needed = drawdown ÷ (1 − drawdown)
A $10,000 account down 20% sits at $8,000. Getting back to $10,000 means adding $2,000 to $8,000 — a 25% gain.
| Drawdown | Balance from $10,000 | Gain needed to break even |
|---|---|---|
| 10% | $9,000 | 11.1% |
| 20% | $8,000 | 25.0% |
| 30% | $7,000 | 42.9% |
| 40% | $6,000 | 66.7% |
| 50% | $5,000 | 100% |
| 60% | $4,000 | 150% |
| 70% | $3,000 | 233% |
The curve is gentle to about 20% and then turns vicious. Up to a 20% drawdown you need a good quarter. Past 50%, you need to double the account just to get back where you started — which for most strategies is a multi-year project, assuming nothing else goes wrong on the way.
Converting the gain into time
The percentage is only half the answer. The other half is how long your strategy takes to produce it.
Months = ln(1 ÷ (1 − drawdown)) ÷ ln(1 + monthly return)
At a solid, sustainable 2% per month:
| Drawdown | Months to recover at 2%/mo | At 5%/mo |
|---|---|---|
| 10% | 5.3 | 2.2 |
| 20% | 11.3 | 4.6 |
| 30% | 18.0 | 7.3 |
| 40% | 25.8 | 10.5 |
| 50% | 35.0 | 14.2 |
A 20% drawdown costs the better part of a year at a realistic return rate. A 50% drawdown costs nearly three. And these figures assume you immediately resume compounding at your normal rate — no reduced size while confidence rebuilds, no changed market conditions, no further losses.
That assumption is generous. In practice, deep drawdowns are followed by smaller position sizes and hesitant execution, which stretches the timeline further.
Why smaller risk per trade shortens the road
Risk per trade sets how deep a normal losing streak digs. Ten consecutive losses:
| Risk per trade | Drawdown after 10 losses | Gain needed |
|---|---|---|
| 1% | 9.6% | 10.6% |
| 2% | 18.3% | 22.4% |
| 3% | 26.3% | 35.7% |
| 5% | 40.1% | 67.0% |
At 1% risk, a ten-loss streak is an ordinary bad month. At 5%, the same streak — identical trading, identical strategy, only the size changed — requires a 67% gain to undo.
This is the argument for small risk per trade, and it does not depend on being wrong about your edge. Ten losses in a row happens to good strategies. The only variable you control is what each one costs.
Drawdown limits worth setting in advance
Decide these before you need them, because judgement is worst mid-drawdown:
- A soft limit (say 10%) where you halve position size until the equity curve stabilises. Trading smaller through a bad run is not weakness; it is the mechanism that keeps the recovery arithmetic manageable.
- A hard limit (say 20%) where you stop entirely and review. Something has either changed in the market or in your execution, and finding out costs less than continuing.
- A daily limit — two or three consecutive losses, then done for the day. Most catastrophic drawdowns are not a run of bad luck; they are one bad day of revenge trading after a run of bad luck.
Prop and funded accounts enforce these externally, usually a 5% daily and 10% maximum drawdown. The traders who last on those programmes are the ones who had their own limits first.