The asymmetry of recovery
Losses and the gains needed to undo them aren’t symmetric. The deeper the hole, the disproportionately larger the climb out:
- A 10% loss needs an ~11% gain to recover.
- A 25% loss needs a ~33% gain.
- A 50% loss needs a 100% gain — you must double what’s left.
- A 75% loss needs a 300% gain.
This is why capital preservation beats heroics: avoiding the deep drawdown is far easier than recovering from it.
What max drawdown tells you
Maximum drawdown is the largest peak-to-trough decline your account (or a strategy) has experienced. It’s a better gut-check than total return because it measures the pain you’d have had to sit through.
A strategy with great returns but a 60% max drawdown is one most people can’t actually trade — they capitulate near the bottom. Knowing your tolerance, and sizing to stay within it, is part of the edge.
Keeping drawdowns survivable
Drawdown is governed mostly by position sizing and risk per trade, not by being right more often. Risking 1% per trade, a painful losing streak of ten trades is a ~10% drawdown; risking 10% per trade, the same streak is catastrophic.
Review drawdowns in your journal to see whether they came from variance (normal) or from broken discipline — oversizing, revenge trades, abandoning stops. An AI coach can tell those apart and recommend the fix.