IC Markets
If you lose 50 per cent of an account, you do not need a 50 per cent gain to get back. You need 100 per cent. This asymmetry is the reason position sizing matters more than any strategy, and it is the trap that closes on every trader who risks too much per trade. The maths is not complicated, but seeing it laid out changes how you think about a bad trade.
The table
| Loss from peak | Gain needed to recover |
|---|---|
| 5% | 5.3% |
| 10% | 11.1% |
| 20% | 25% |
| 30% | 42.9% |
| 40% | 66.7% |
| 50% | 100% |
| 60% | 150% |
| 70% | 233% |
| 80% | 400% |
| 90% | 900% |
A $10,000 account that falls to $5,000 has lost 50 per cent. To get back to $10,000 from $5,000 is a $5,000 gain on a $5,000 base, which is 100 per cent. The deeper the hole, the steeper the climb, and past about 40 per cent it becomes a climb most retail traders never finish.
Why it compounds the damage
Two things make a deep drawdown worse than the number suggests. First, the account is smaller, so the same trading in dollar terms is a bigger percentage swing, which raises volatility and the chance of a further drop. Second, the psychology. A trader down 50 per cent is rarely trading calmly. They size up to recover faster, which is exactly the move that takes 50 per cent to 80 per cent. The revenge trading case study is this happening in real time.
The pattern we see most often: a trader is up 15 per cent over a few months. One over-sized trade or a revenge session takes them down 35 per cent from the peak. They now need a 54 per cent gain just to get back to that peak. Trading calmly at 2 to 4 per cent a month, that is a year or more. Trading aggressively to speed it up, most of these accounts are gone within two months. The traders who survive are the ones who accept the year and go back to 1 per cent risk.
What it means for risk per trade
Work backwards from the table. If you never want to be in a hole that takes more than a few months to climb out of, you need to keep your maximum drawdown under about 20 per cent, which needs a 25 per cent recovery. To keep drawdown under 20 per cent, your risk per trade has to be small enough that a realistic losing streak stays inside that. At 1 per cent risk, a 15-loss streak (rare, but possible) is about a 14 per cent drawdown. At 3 per cent risk, the same streak is 37 per cent, well into the danger zone. At 10 per cent risk, a 6-loss streak is 47 per cent and the account may not recover.
- 1% risk: even a bad losing streak keeps drawdown roughly recoverable.
- 2% risk: acceptable, with a worse streak still climbable.
- 3-5% risk: one bad run puts the account in a hole that takes a year-plus to fix.
- 10%+ risk: a normal losing streak can end the account.
The takeaway
The recovery table is the strongest argument for small position sizes that exists. You are not risking 1 per cent per trade to be cautious. You are risking 1 per cent because the maths of recovery means a 40 per cent drawdown is close to fatal, and the only reliable way to avoid a 40 per cent drawdown is to make sure no single trade, and no normal losing streak, can get you close to it.
Set a personal drawdown circuit breaker: if the account falls 15% from its peak, cut risk to 0.5% per trade until it makes a new high. It slows the recovery but it stops the 15% turning into 40%.
Frequently asked
Why isn't a 50% loss fixed by a 50% gain?
Because the gain is calculated on the smaller balance. 50% of $10,000 is $5,000. Getting from $5,000 back to $10,000 is a $5,000 gain on a $5,000 base, which is 100%.
What is a 'good' maximum drawdown for a retail trader?
Under 20% is comfortable and recoverable. 20-30% is manageable but stressful. Past 40% the recovery odds drop sharply, mostly because of the trading behaviour a deep drawdown triggers.
How does drawdown relate to risk per trade?
Your maximum realistic drawdown is roughly your risk per trade times your longest plausible losing streak. At 1% risk and a 15-loss streak, that is about 14%. At 5% risk it is about 54%.
Should I stop trading during a drawdown?
Reducing risk (for example halving it) is usually better than stopping entirely, because losing streaks end unpredictably and stopping means missing the recovery. But if you are trading emotionally, a short break can be the right call.
Is a drawdown the same as a loss?
A drawdown is the decline from a peak in account value, whether or not positions are closed. A 20% drawdown means the account is 20% below its highest point, which you recover by making new highs.