Calculate recovery needed after consecutive losses
Drawdown shows how much your account shrinks after a series of losses. The key insight: recovery is always harder than the loss. A 50% drawdown requires a 100% gain to recover.
With a 5% risk per trade and 10 consecutive losses, your account drops about 40%, requiring a 67% return to recover. With 2% risk, 10 losses only cause a 18% drawdown, needing just 22% to recover.
This illustrates why risk management is crucial. Even with a 60% win rate, strings of 5-10 losses are statistically inevitable.
