Lesson 5 of 6 · Risk & Position Sizing
Drawdowns
Drawdowns compound against you.
Losing 20% does not mean you need 20% to recover. You need 25%. A 50% drawdown requires 100% just to get back to flat. The math gets worse the deeper you go.
The recovery math, visualized.
Down 10%: need 11.1% to recover. Down 20%: need 25%. Down 30%: need 42.9%. Down 50%: need 100%. A trader risking 5% per trade who hits a ten-loss streak is down roughly 40% and needs a 67% gain to get back to flat.
This one is an animated diagram in the app. See it in Vero.
Smaller risk, smaller hole.
At 1% risk per trade, a ten-loss streak costs roughly 10%. Uncomfortable, but recoverable. At 5%, the same streak costs close to 40%. The difference between those two outcomes is one rule: how much you risk per trade.
Your account drops from $10,000 to $7,500. What gain returns you to $10,000?
Show the answer
C. 33%. You lost $2,500 on a $10,000 account, a 25% drop. To recover: $2,500 / $7,500 = 33.3% gain on the remaining balance.