A drawdown is measured from the high-water mark, and climbing back out is unkind: losses and gains are not symmetrical. Enter peak and current equity to see how deep the drawdown is and what return is needed to recover it.
The table is the whole argument for tight risk control in one place. Recovery percentages are calculated from the remaining equity, which is why the right-hand column grows faster than the left.
| Drawdown | Equity left | Gain to break even | On a $10,000 account |
|---|
Drawdown is the distance between the highest equity your account has reached and where it stands now, expressed as a percentage of that peak. A $10,000 account that falls to $7,200 is in a 28% drawdown. Peak-to-trough is the standard definition on a statement; the same calculation applied continuously gives the maximum drawdown figure that funds and prop desks quote, because it describes the worst stretch an investor would have had to sit through.
Two details matter. First, it is measured from the high-water mark, not the starting deposit, so profits given back count exactly like original capital lost. Second, every new low resets the base, which is why deep drawdowns get progressively harder to escape.
Drawdown also has a psychological dimension a percentage hides: a 10% dip is an inconvenience, a 40% dip changes how a trader sizes, and often marks where rules get abandoned to recover the loss faster. That behaviour, not the arithmetic, turns a recoverable drawdown into a terminal one.
Note the denominators. Drawdown divides by the peak, the value you lost from. Recovery divides by the current, smaller balance, the base you now have to grow. The gap between the two widens as the drawdown deepens.
A 20% drawdown needs a 25% gain. A 50% drawdown needs 100%. A 90% drawdown needs 900% — a tenfold increase just to return to where you started. The relationship is not linear and it is not a quirk of the maths; it is the reason professionals treat capital preservation as the first objective and returns as the second.
The inverse of the recovery fraction is a useful check: it gives the dollars you must earn per dollar lost. At a 20% drawdown that multiple is 1.25, at 50% it is 2, at 80% it is 5. Once it passes two, the strategy must be twice as effective as before the loss simply to stand still.
An account peaks at $10,000, then a run of gold trades takes it to $7,200. Drawdown is (10,000 − 7,200) ÷ 10,000 = 28%. The trader has lost $2,800, or 28 cents on the dollar, and holds 72% of the peak.
Recovery: 2,800 ÷ 7,200 = 38.9%. To get back to $10,000 the account must earn $2,800 on a $7,200 base — a return nearly 11 percentage points larger than the loss, from a smaller starting point. If the strategy historically returns 4% a month, that is roughly eight months of flawless performance just to undo the damage, before any new profit exists.
Now suppose the same trader had risked 1% per trade instead of 5%. The losing sequence that produced 28% would have produced roughly 6%, needing 6.6% to recover — about seven weeks. Nothing about the trades changed; only the size did. This is the cheapest lever in trading and the one most often ignored when a streak turns bad.
Finally, the streak estimate in the output: at 2% risk and no wins in between, about seventeen consecutive losses produce a 28% drawdown. Seventeen in a row is uncommon but far from impossible for a strategy with a 45% hit rate — over a few hundred trades it is close to expected. Sizing that survives the worst plausible streak, not the average trade, is what keeps drawdowns recoverable.
XAU/USD can move $30 to $50 in a session around a CPI print or an FOMC decision, and weekend gaps are routine. A position sized so a $20 stop costs 2% of the account becomes a 5% loss on a $50 gap, and two of those in a month is a 10% drawdown before any other mistake. Because gold's daily range is large in absolute dollars, the lot size that feels modest on a currency pair is aggressive here.
The practical rule: set risk per trade from the drawdown you can tolerate and the streak you should expect, then let stop distance determine lots. A 10% drawdown target with an expected ten-loss streak implies roughly 1% risk per trade — far more defensible than the 5% that feels harmless on a good week.
Figures assume a USD-denominated account with no deposits or withdrawals during the period. Deposits reset the base and make a raw peak-to-current comparison misleading; use a time-weighted series if cash has moved in or out.
Treat the recovery percentage as a cost of the drawdown, not as a target. If the required gain is larger than what your strategy has historically produced in a quarter, the correct response is to reduce size and rebuild, not to increase risk to shorten the path. The position size calculator converts a risk percentage into lots, and risk management covers the streak maths behind these numbers. To test a sizing plan against live prices, open the gold trading page.
Subtract current equity from peak equity, divide by peak equity and multiply by 100. A fall from $10,000 to $7,200 is (10,000 − 7,200) ÷ 10,000 = 28%. Maximum drawdown is the largest such figure over the life of the account.
Because the recovery is earned on the remaining balance, not on the original. Half of $10,000 leaves $5,000, and doubling $5,000 returns $10,000, which is a 100% gain. The deeper the drawdown, the smaller the base and the larger the required percentage.
Yes, proportionally. Halving the risk per trade roughly halves the drawdown produced by the same losing sequence, and it also halves the recovery gain needed. Entry quality sets the hit rate; position size sets how much of the account each loss costs, which is why it is the first control to check after a bad run.