Let’s talk about something crucial – how to recover when your portfolio takes a hit. I’ll share with you my portfolio recovery formula that will help you understand what it takes to bounce back and shield your investments from potential destruction.

Imagine your portfolio faces a downturn, which traders call a drawdown. It’s not just about the percentage you lose; it’s about how much more you need to recover exponentially. Many traders overlook this critical aspect during tough times.

Now, meet two traders, John and Georgia, who both experience drawdowns after three months of trading. Georgia is down 5%, and John is down a whopping 60%. The question is, what does it take for them to recover and turn their portfolios green again?

Let’s break down the portfolio recovery formula:

Required percentage=(11−Percentage loss)−1Required percentage=(1−Percentage loss1​)−1

For Georgia, who’s down 5%:

Required percentage=(11−0.05)−1=5.2%Required percentage=(1−0.051​)−1=5.2%

It’s straightforward for her – a 5.2% return will get her portfolio back on track. But for John, with a 60% loss:

Required percentage=(11−0.6)−1=155%Required percentage=(1−0.61​)−1=155%

Now it gets scary. John needs a whopping 155% return to recover his trading account after a 60% drawdown.

The key takeaway is clear – as losses increase, the recovery challenge becomes more significant. If your portfolio ever drops more than 20%, you need a plan to bring it back up. Successful traders I know follow the science of successful trading: preserve, protect, and grow your portfolio. They have measures in place to avoid blowing more than 20% of their portfolio.