The cruel math of drawdown
A loss and the gain that offsets it are not symmetrical. If you lose 10%, gaining 10% back isn't enough: you need 11.1%, because you're now starting from a smaller base. And the trap explodes with big losses: lose 50% and you need to double (+100%) just to break even. Lose 90% and you need +900%.
That's why good traders are fanatical about not taking big losses. It's not about being right more often — it's about making sure one bad day doesn't drop you into a hole the arithmetic won't let you climb out of. That's where position sizing and risk of ruin come in.
Reference table
| If you lose… | …you must gain | Reality |
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Frequently asked questions
Where does the formula come from?
If you lose a fraction d of your capital, (1−d) is left. To get back to 1 from (1−d) you must multiply by 1/(1−d), i.e. a gain of d/(1−d). With d=0.5 → 0.5/0.5 = 100%.
Why does it matter so much for a bot or a prop firm challenge?
Because many challenges knock you out on drawdown before you get time to recover, and because an EA that takes a −40% needs a +66% perfect run to get back — which rarely happens. Measure it first with the prop firm simulator.
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