Risk management
The idea
Drawdown compares account equity with a prior peak. Recovery is asymmetric because a percentage gain applies to the smaller remaining balance. Cash deposits can conceal trading losses if records do not distinguish flows from performance. Protecting against large drawdowns is partly about preserving the ability to continue.
A worked example
A fall from 100 to 80 is a 20% loss. Recovering from 80 to 100 requires a 25% gain, before costs and cash flows.
Try it yourself
Calculate the recovery needed after 10%, 25% and 50% losses using the gain-and-loss tool.
A mistake to avoid
Expecting the same percentage gain to reverse an equal percentage loss.