Drawdown Calculator
Calculate maximum drawdown and the gain needed to recover your losses
What is Drawdown?
Drawdown measures how much your account has declined from its peak value. Maximum drawdown (MDD) is the largest peak-to-trough decline before reaching a new high - it represents the worst-case scenario you've experienced.
Understanding drawdown is critical because recovering from large losses is exponentially harder than most traders realize.
The Drawdown Formula
Drawdown % = (Peak - Current) / Peak x 100
Peak = Highest account value
Current = Current account value (or lowest point)
Drawdown Example
Account History:
- Starting Balance: $10,000
- Peak (high point): $15,000
- Trough (low point): $9,000
Calculation:
Drawdown = ($15,000 - $9,000) / $15,000
= $6,000 / $15,000
= 40% Max Drawdown
The Recovery Problem
Here's what most traders don't understand: losses and gains are not symmetrical. If you lose 50%, you need to gain 100% just to get back to even. This is why protecting capital is more important than making money.
Recovery Required = Drawdown / (1 - Drawdown)
Or simply: Recovery % = Loss % / (100% - Loss %)
Drawdown vs Recovery Table
This table shows why avoiding large drawdowns is so important:
| Drawdown | Recovery Needed | Difficulty |
|---|---|---|
| 5% | 5.3% | Easy |
| 10% | 11.1% | Easy |
| 20% | 25% | Moderate |
| 30% | 42.9% | Difficult |
| 40% | 66.7% | Hard |
| 50% | 100% | Very Hard |
| 60% | 150% | Extremely Hard |
| 75% | 300% | Nearly Impossible |
| 90% | 900% | Account Blown |
Drawdown Limits by Account Type
Prop Firm Accounts
5-10%
Typical max drawdown before failing evaluation or losing funded account
Professional Traders
10-20%
Target max drawdown for sustainable long-term trading
Hedge Funds
15-25%
Typical drawdown limits before investor redemptions
How to Minimize Drawdown
- -Risk only 1-2% per trade - Small losses are recoverable
- -Use stop losses religiously - Never hope a losing trade recovers
- -Reduce size after losses - Trade smaller when in drawdown
- -Diversify strategies - Don't rely on one approach
- -Track your metrics - Know your max drawdown at all times
Drawdown Psychology
Large drawdowns don't just hurt your account - they hurt your psychology. After a 30%+ drawdown, most traders start making emotional decisions, overtrading, or revenge trading, which makes recovery even harder. Prevention is always better than cure.
Recovery Time Calculator
How long does it take to recover from a drawdown? It depends on your monthly return rate:
| Drawdown | At 5%/month | At 10%/month | At 20%/month |
|---|---|---|---|
| 10% | ~2 months | ~1 month | ~2 weeks |
| 25% | ~6 months | ~3 months | ~1.5 months |
| 50% | ~14 months | ~7 months | ~4 months |
Frequently Asked Questions
What is maximum drawdown?
Maximum drawdown (MDD) is the largest peak-to-trough decline in your account before a new high is reached. It measures the worst loss you experienced from any high point.
How do you calculate drawdown?
Drawdown = (Peak Value - Trough Value) / Peak Value x 100. For example, if your account went from $10,000 to $7,000: (10000 - 7000) / 10000 x 100 = 30% drawdown.
What percentage gain do I need to recover from a drawdown?
Recovery Required = Drawdown / (1 - Drawdown). A 20% loss requires 25% gain to recover. A 50% loss requires 100% gain. A 75% loss requires 300% gain.
What is an acceptable maximum drawdown?
Most professional traders aim to keep max drawdown under 20%. Prop firms typically allow 5-10% max drawdown. Anything over 30% becomes very difficult to recover from.
Continue Learning
Risk Disclosure: Trading involves substantial risk of loss and is not suitable for all investors. This content is for educational purposes only and does not constitute financial advice.
Last updated: December 2025