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Recovery factor

Net profit divided by maximum drawdown, showing how many times over the strategy earned back its worst decline.

The gain needed to recover from a lossFour bars showing that deeper losses need disproportionately larger gains to get back to the starting balance.ACCOUNT LOST−10%+11.1%−20%+25%−50%+100%−80%+400%0%100%200%300%400%GAIN REQUIRED TO GET BACK TO EVEN
What it takes to get back to even. Losses and the gains that undo them are not symmetrical. Losing 10% needs an 11.1% gain to return to the starting balance, losing 50% needs 100%, and losing 80% needs 400%.

A system making $48,000 of net profit with a worst drawdown of $12,000 has a recovery factor of 4. It is a quick, unitless read on whether the returns justified the worst stretch.

Rough interpretation for a multi-year record: under 2 is thin, 3 to 5 is solid, above 10 usually means the sample is short or the worst drawdown has not happened yet. Unlike calmar-ratio it is not annualised, so it rises mechanically with record length - which makes it useful within one backtest and misleading across records of different lengths.

Its best use is comparative, across parameter settings or strategy variants tested over the identical period. There it answers the practical question directly: for the same pain, which version paid more?

Related: calmar-ratio, max-drawdown, profit-factor, drawdown-recovery-maths

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