Recovery Factor
The ratio of net profit to maximum drawdown, indicating how many times over you've recovered your worst loss.
Formula
More Details
What is Recovery Factor?
Recovery Factor measures how many times over your net profit covers your worst drawdown. It's a straightforward resilience metric: the higher the number, the more comfortably your profits have recovered from — and exceed — the worst period you've experienced.
While the Calmar Ratio and Recovery Factor share a similar formula, the distinction is context: Recovery Factor is typically presented as a pure ratio without annualization, making it directly interpretable as "I've earned X times my worst drawdown."
Formula
Recovery Factor = Total Net P&L / |Maximum Drawdown|
Where:
- Total Net P&L = cumulative realized profit/loss
- |Max Drawdown| = absolute value of the largest peak-to-trough drawdown
Interpretation
| Recovery Factor | Meaning |
|---|---|
| < 0 | Net loss — system is not profitable |
| 0 – 1.0 | Profitable, but profits haven't fully recovered from the worst drawdown |
| 1.0 – 3.0 | Healthy — profits are 1–3× the worst drawdown |
| 3.0 – 6.0 | Strong — comfortable buffer above worst-case scenario |
| > 6.0 | Excellent — very robust system or small drawdowns |
Why It Matters
The Recovery Factor answers a practical question every trader should ask: "If my worst drawdown happened again right now, would my accumulated profits survive it?"
- Recovery Factor = 1.0 → Another max drawdown would wipe out all profit
- Recovery Factor = 3.0 → Another max drawdown would take only one-third of your profit
- Recovery Factor = 0.5 → Your max drawdown was already twice your total profit — you'd go net negative
A Practical Example
| Period | Equity | Drawdown from Peak |
|---|---|---|
| Start | $10,000 | — |
| Month 3 | $14,000 | — |
| Month 5 | $10,500 | −$3,500 (max DD) |
| Month 8 | $16,000 | — |
| Month 12 | $18,000 | — |
- Total Net P&L = $18,000 − $10,000 = $8,000
- Max Drawdown = $3,500
- Recovery Factor = 8,000 / 3,500 = 2.29
This trader has earned 2.29× their worst drawdown — a solid position that provides a meaningful buffer.
Relationship to Other Metrics
| Metric | Focus |
|---|---|
| Recovery Factor | Total profit vs worst drawdown (simple resilience check) |
| Calmar Ratio | Same formula but often annualized for fund comparison |
| UPI | Accounts for drawdown duration, not just depth |
| Sharpe / Sortino | Volatility-based, not drawdown-based |
How TradesViz Calculates It
TradesViz computes the cumulative daily P&L equity curve, identifies the maximum drawdown (which is also shown separately with its date), and divides total net P&L by the absolute drawdown value.
How TradesViz Does It Better
- Displayed with Max Drawdown and its date for full context
- Filter by time period, setup, or symbol to see Recovery Factor for subsets of your trading
- Comparative view: See Recovery Factor alongside Calmar and UPI for a comprehensive drawdown risk assessment
- Custom dashboard widget for tracking resilience over time
Where to find it in TradesViz
Example
A trader with $8,000 net profit and a $3,500 max drawdown has a Recovery Factor of 2.29 — they've earned 2.29× their worst loss.