The formula in one sentence: the gain needed to erase a loss is gain = loss / (1 − loss). A 20% loss therefore requires +25%; a 50% loss, +100%. The gain is always computed on the capital that remains, not on the starting capital.
How to use it
Enter the loss taken — the drawdown, as a percentage from the highest point reached. The result updates instantly: it's the gain you'd need on the remaining capital to get back to your starting point. Add a starting capital to translate the percentage into a concrete amount.
How to read the result
Recovery is not the mirror image of the loss — it's always larger. Here are a few reference points the formula produces.
| Loss taken (drawdown) | Gain needed to break even |
|---|---|
| -10% | +11.1% |
| -20% | +25.0% |
| -25% | +33.3% |
| -50% | +100.0% |
The classic mistake
Confusing the loss with the recovery gain. Many assume a 50% loss is undone by a 50% gain — it takes double, because the gain is computed on what's left, not on the initial capital. That's exactly why, quantitatively, avoiding a large drawdown matters more than optimizing the average return: the recovery effort grows far faster than the loss itself.
At Sextant
At Sextant — a transparent quant platform — this asymmetry sheds light on part of our stance. The engine is a calibrated AI model that knows how to abstain: it spends much of its time out of the market rather than exposing capital to deep, hard-to-recover losses. The public logbook shows the real drawdown continuously, and the methodology explains how losses are measured, costs included.
Frequently asked questions
How do you calculate the gain needed to recover a loss?
With the formula gain = loss / (1 − loss), the loss expressed as a fraction. A 25% loss gives 0.25 / 0.75 = 0.333, i.e. +33.3% needed on the remaining capital to return to the starting point.
Why does a 50% loss require +100% to be erased?
Because the gain is computed on the remaining capital, not the initial capital. After −50%, only half the capital is left: doubling it, i.e. +100%, is required to return to the starting point. That's the recovery asymmetry, and it worsens as the loss deepens.
What is a drawdown?
A drawdown is the decline from the highest point reached by a capital or a strategy, before recovery. The maximum drawdown measures the worst of these declines over a period. It's one of the most telling risk metrics, because it describes the loss actually experienced, not mere statistical noise.