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In plain English
After a loss, the same percentage gain does not bring you back to your starting value. The gain is calculated from a smaller amount.
- CAD 12,000
Previous peak in this example.
- CAD 9,000
A 25% fall from the peak.
- +33.33%
The gain needed to return to CAD 12,000.
The precise meaning
A drawdown measures the distance below a previous peak. Recovery starts from the smaller amount left behind, which changes the percentage you need.
In this guide: contents & sources
Drawdown in trading is the decline from an earlier high to a lower value. It can describe a price or an account. Here, drawdown is shown as a positive loss percentage: a fall from CAD 12,000 to CAD 9,000 is a 25% drawdown.
That same account might have started at CAD 10,000. It is then down 10% from its starting capital, not 25%. Both measurements are correct. They answer different questions because they use different reference points. Follow one hypothetical account through its rise, fall and partial rebound to see the difference.
One account, four values, two reference points
Our account begins at CAD 10,000, reaches CAD 12,000, falls to CAD 9,000 and then rebounds to CAD 10,800. Assume no deposits, withdrawals or separate charges. These are four example values, not a prediction or a record of actual trading.
At the low point, the account has lost CAD 3,000 from its peak. Divide that loss by CAD 12,000 to get 25%. Comparing CAD 9,000 with the original CAD 10,000 instead gives a CAD 1,000 loss, or 10%. The peak remains the reference until a new high replaces it.
| Stage | Account value | Below peak so far | Return from start |
|---|---|---|---|
| Start | CAD 10,000 | 0% | 0% |
| New peak | CAD 12,000 | 0% | +20% |
| Low point | CAD 9,000 | 25% | -10% |
| Partial rebound | CAD 10,800 | 10% | +8% |
The missing CAD 3,000 is a bigger share of what remains
Returning from CAD 9,000 to CAD 12,000 requires the same CAD 3,000 that was lost. But the gain is measured against CAD 9,000. The calculation is 3,000 ÷ 9,000 × 100, giving 33.333...%. A 25% rise would only reach CAD 11,250.
The general relationship is recovery gain (%) = loss (%) ÷ [100 − loss (%)] × 100. A 20% loss requires a 25% gain; a 50% loss requires a 100% gain. This asymmetry comes from the changing denominator, not from a special feature of crypto.
Change the loss and watch the recovery gap widen
Enter a hypothetical peak and loss percentage in the experiment. Start with CAD 12,000 and 25%, then compare 50% and 75%. The remaining amounts are CAD 9,000, CAD 6,000 and CAD 3,000. The required gains are approximately 33.33%, 100% and 300%.
Doubling the peak doubles the dollar loss and remaining value, while the required recovery percentage stays the same. The experiment models one decline. It does not reconstruct maximum drawdown from a trading history, include cash flows or estimate a recovery date.
How much recovery does this loss need?
Try the assumptionsA 25.00% decline leaves $9,000.00. Regaining $3,000.00 is measured from that smaller balance.
One decline, no deposits or withdrawals. This does not estimate recovery time or compute maximum drawdown from a history.
Recovery curve: loss runs from 0 to 100% left to right; recovery from 0 to 900% bottom to top. The endpoint at total loss has no finite recovery. The copper marker is the selected input.
Loss percentage and required recovery
| Decline from peak | Gain needed after the loss |
|---|---|
| 0.00% | 0.00% |
| 10.00% | 11.11% |
| 20.00% | 25.00% |
| 30.00% | 42.86% |
| 40.00% | 66.67% |
| 50.00% | 100.00% |
| 60.00% | 150.00% |
| 70.00% | 233.33% |
| 80.00% | 400.00% |
| 90.00% | 900.00% |
| 100.00% | No finite percentage |
Current drawdown is a snapshot; maximum drawdown is a record
At CAD 10,800, current drawdown is 10%. Maximum drawdown across our four example values remains 25%, because the largest recorded fall was from CAD 12,000 to CAD 9,000. A later rebound does not erase that earlier event.
The period you measure matters. A record beginning at CAD 9,000 would miss the earlier peak and fall. So does how often values are recorded: CME explains that monthly values can hide deeper falls within a month. Our four example values cannot show what happened between them.
Keep the running peak
At each point in the record, note the highest value reached so far during the chosen period.
Measure the gap
Subtract the current value from that peak, then divide by the peak.
Retain the deepest decline
The largest percentage drop is the maximum drawdown in the values you recorded.
Depth does not tell you how long you are underwater
Time underwater describes the interval from an earlier peak until the account regains it. Our CAD 10,800 balance is still underwater relative to CAD 12,000. Without dates, the example says nothing about duration.
Two accounts can share a 25% maximum drawdown and spend very different lengths of time below their peaks. One could later regain its peak; another might stay below it throughout the record. Until an account recovers, you can count the time already spent below its peak but cannot give a recovery date.
Two cases the simple percentage cannot resolve
- New money: depositing CAD 3,000 into the CAD 9,000 account restores its balance to CAD 12,000, but that is not a 33.33% investment return. A withdrawal can likewise lower the balance without representing a trading loss. Separate external cash flows before interpreting a raw balance chart as performance.
- Total loss: a 100% decline leaves zero. No finite percentage gain on zero restores a positive peak in this model. The experiment therefore reports no finite recovery percentage instead of displaying an ordinary gain target.
Check what each drawdown figure includes
Before comparing two drawdown figures, check their starting dates, how often values were recorded, the currency, and how deposits, withdrawals and fees were handled. These examples use CAD throughout. Changing currency midway would change the comparison.
Historical drawdown shows how far the value fell in the record you are using. Required recovery tells you the percentage gain needed from a chosen low point. Neither tells you how to earn that gain. To look at one trade separately, the position-size tool uses your planned loss, while the profit tool includes the trading fees you enter.
For the sequence limitation, compare payoff averages with win rate while keeping the account path as a separate question.
A few loose ends
Common questions
Can an account be profitable and still in drawdown?
Yes. CAD 10,800 is 8% above our CAD 10,000 starting value but 10% below the later CAD 12,000 peak. Overall return and current drawdown use different baselines.
Does recovering a 50% loss require a 50% gain?
No. CAD 10,000 falling to CAD 5,000 loses 50%. Regaining CAD 5,000 from that smaller base requires a 100% gain. A 50% gain would reach only CAD 7,500.
Is drawdown the same as a realized loss?
No. Drawdown can be measured from changing account valuations even when holdings have not been sold. A realized loss concerns a completed disposal. State whether a chart tracks account value or only closed trades before comparing it.
Check the original
Sources & checks
Reviewed October 1, 2026. Sources support the definitions and model context. Numerical examples are hypothetical and do not predict market outcomes.