Drawdown Math — the Recovery Asymmetry

The brutal table

−10% needs +11% to recover. −25% needs +33%. −50% needs +100%. −90% needs +900%. Losses compound against you: each drawdown makes the recovery hurdle steeper than the drop itself. This asymmetry is why capital preservation dominates return-chasing — the deep hole is mathematically different from the shallow one.

Max drawdown in practice

Every strategy and every portfolio HAS a max drawdown — the question is whether you can hold through yours. If a 20% drawdown would make you abandon the system, then a system that produces 20% drawdowns is wrong FOR YOU regardless of its backtest. Risk tolerance is a design input, not an afterthought.

Time drawdown

The neglected twin: underwater TIME. A strategy that dips 10% and takes 3 years to recover is psychologically identical to a 25% fast dip for most people. Evaluate strategies on both depth AND duration of drawdowns.

Sources

• Maximum DrawdownInvestopedia
• Trade Your Way to Financial FreedomVan K. Tharp