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Drawdown Calculator — Recovery Math for Forex Traders
How drawdown and recovery is calculated
Recovery % = (100 × Drawdown %) ÷ (100 − Drawdown %) For consecutive losses at fixed-fractional risk r: Remaining equity = Starting × (1 − r)^N Drawdown % = 100 × (1 − (1 − r)^N) Where: Drawdown % = peak-to-trough equity decline r = risk per trade (decimal, e.g. 0.01 for 1%) N = number of consecutive losses
After a drawdown of D% from equity E, remaining equity is E × (1 − D/100). To restore equity to E, you need to gain D ÷ (1 − D/100) on the remaining equity. The asymmetry grows non-linearly: small drawdowns require slightly-larger gains to recover, but large drawdowns require dramatically larger gains. A 50% drawdown requires a 100% gain because remaining equity has been halved. A 90% drawdown requires 900% because remaining equity is 10% of original. For consecutive fixed-fractional losses, the compounding works the other way — each loss is a constant percentage of the current (smaller) equity, so 10 consecutive 1% losses produce a drawdown of 100 × (1 − 0.99^10) = 9.56%, not 10%.
Worked example
Inputs
- Starting equity: $10,000
- Risk per trade: 1.5%
- Consecutive losses: 8
Calculation
- Convert risk to decimal: 1.5% → 0.015.
- Apply compounding: Remaining = $10,000 × (1 − 0.015)^8 = $10,000 × 0.886 = $8,857.74.
- Compute drawdown: ($10,000 − $8,857.74) ÷ $10,000 × 100 = 11.42%.
- Compute recovery: 11.42 ÷ (100 − 11.42) × 100 = 12.89%.
- Result: the EA must gain 12.89% on the remaining $8,857.74 to restore the $10,000 peak.
Result: 11.42% drawdown · 12.89% recovery required on the remaining capital
Edge cases & special pairs
- Small drawdowns (< 10%)Recovery percentage roughly equals drawdown percentage because the math is nearly linear at small values: 5% drawdown needs ~5.26% recovery, 8% needs ~8.7%. Don't over-engineer recovery planning for sub-10% drawdowns; the asymmetry isn't material.
- Approaching ruin (≥ 50%)Recovery becomes geometric. 50% drawdown → 100% recovery. 75% drawdown → 300% recovery. 90% drawdown → 900% recovery. Most retail traders psychologically quit before 50% drawdown — and even those who don't, the math against recovery is brutal.
- Fixed-lot vs fixed-fractional sizingThe consecutive-losses formula above assumes fixed-fractional sizing (each loss is r% of CURRENT equity). For fixed-lot sizing, each loss is the same dollar amount, so drawdown grows linearly: 10 losses at $100 each on a $10,000 account = 10% drawdown exactly, not 9.56%.
- Drawdown DURATION vs drawdown DEPTHMT5 reports max drawdown (depth) but not drawdown duration. A 15% drawdown that recovers in 4 weeks is psychologically tolerable; the same 15% drawdown that lasts 18 months breaks most traders. Track both metrics — duration matters as much as depth.
- Open-position drawdown vs closed-trade drawdownMT5 reports both Balance Drawdown (closed P/L only) and Equity Drawdown (includes open mark-to-market). Equity Drawdown is the right number to track for EA evaluation — Balance Drawdown can hide an open position that's silently 20% underwater.
- Prop firm daily-loss limit interactionProp firms enforce a daily-loss cap (typically 5%). The drawdown calculator's recovery math is still correct, but the practical constraint is different — you can't 'wait it out' over multiple days. A 5% daily loss = challenge failure regardless of subsequent recovery.
- Multiple EAs producing correlated lossesIf 5 correlated EAs each lose 1% on the same day, total drawdown is 5%, not sqrt(5) × 1% = 2.24%. For uncorrelated EAs, the diversification holds. Treat correlation matrix as a primary input to portfolio-level drawdown estimates.
When to use this calculator
Use this calculator in two contexts. (1) Before deploying an EA: backtest report shows max drawdown — plug it in here and confirm the recovery math is tolerable. A 30% max drawdown requires a 43% recovery; many EAs that look profitable in headlines actually spend most of their life recovering from drawdowns. (2) During live operation: when you hit a drawdown, the calculator tells you what gain is required to recover. This is essential for psychological discipline — many traders abandon a still-working EA because the recovery looks impossible, when actually a normal 1-2 months of standard returns covers most retail-grade drawdowns. The Recovery Factor metric in your backtest report (net_profit / max_drawdown) is a related summary: above 5 is healthy, below 2 means the EA spends a lot of its life recovering rather than progressing.
Related guide: How to read trading statistics (drawdown context) →
Frequently asked questions
What max drawdown is acceptable for a retail EA?
The acceptable level depends on the trader's psychology and account size. A 30% drawdown on a $5,000 account ($1,500 nominal) is bearable; the same 30% on a $500,000 account ($150,000 nominal) often causes panic-quit even though the percentage is identical. For prop-firm challenges, the firm's overall-loss limit (typically 10-12%) effectively dictates the max acceptable backtest drawdown — never above 60% of the firm's limit.
What's the difference between drawdown and loss?
Specifically: if equity goes $10k → $10.5k (peak) → $9k (trough) → $9.5k → $10k, the max drawdown is ($10.5k − $9k) ÷ $10.5k = 14.3%, regardless of how many individual losing trades it took to get there. The peak-to-trough measurement is what matters because that's the worst-case the trader actually experiences emotionally and operationally.
If I'm using fixed-fractional sizing, why is drawdown less than 10× a 1% loss?
Fixed-lot sizing reverses this: each loss is the same dollar amount regardless of equity, so 10 losses at $100 each on a $10,000 account = exactly 10% drawdown. After the 10th loss, the trader is still trading $100 per trade, which is now 11.1% of remaining equity — the next loss would be 11.1%, not 10%. The compounding works against you. This is why fixed-fractional is the mathematically correct default for any strategy with non-zero loss probability.
Why do traders quit at smaller drawdowns than the math says is recoverable?
The mitigation is psychological framing: pre-commit to specific drawdown thresholds and don't re-evaluate the strategy below them. 'I'll review the strategy if drawdown exceeds 25%' is a useful rule. Without pre-commitment, the temptation to second-guess at every -5% intensifies and traders abandon EAs in working condition. The most common 'EA stopped working' story is actually 'trader stopped tolerating drawdown' — the EA was fine, the operator quit too early.
Should I assume my live drawdown will be worse than backtest drawdown?
The exact multiplier depends on EA style. Scalping EAs face the largest live-vs-backtest gap (often 1.5-2× drawdown ratio) because each trade is closer to the spread-and-commission line. Trend-followers see smaller gaps (1.1-1.3×) because each trade has more profit cushion. Use Monte Carlo simulation on the historical trade list to estimate the 95th-percentile drawdown — usually 1.4× the chronological max DD.
How long does drawdown typically take to recover?
MT5 reports Maximum Drawdown Duration in the Strategy Tester Results. Track this number — it's just as important as the drawdown depth. EAs with 15% max drawdown but 18-month recovery time are torture to hold through; EAs with 25% max drawdown but 2-month recovery time are tolerable. The latter is mathematically a worse drawdown but psychologically easier.