#Drawdown #RiskManagement
USD 100 falls to USD 80: a 20% loss.
A 20% gain on USD 80 adds USD 16, leaving USD 96. Recovering the USD 20 requires 25% of the smaller balance. Arithmetic is not a reason to increase risk.
A hypothetical balance falls from USD 100 to USD 80. Does a 20% gain take it back to USD 100?
Answer: No. Twenty percent of USD 80 is USD 16, leaving USD 96. Getting back to USD 100 requires USD 20, or 25% of USD 80.
This ignores deposits, withdrawals and costs. It describes a changing denominator, not a return forecast.
USD 100 falls to USD 80: a 20% loss.
A 20% gain on USD 80 adds USD 16, leaving USD 96. Recovering the USD 20 requires 25% of the smaller balance. Arithmetic is not a reason to increase risk.
A hypothetical balance falls from USD 100 to USD 80. Does a 20% gain take it back to USD 100?
Answer: No. Twenty percent of USD 80 is USD 16, leaving USD 96. Getting back to USD 100 requires USD 20, or 25% of USD 80.
This ignores deposits, withdrawals and costs. It describes a changing denominator, not a return forecast.