What is recovery factor
The recovery factor is a strategy's net profit divided by its maximum drawdown over the same period.
A drawdown is the fall in account value from a peak to the lowest point before a new peak. The maximum drawdown is the deepest such fall in the test or trading period. The recovery factor tells you how much net profit the strategy made for each unit of its worst loss from peak to trough.
Ready to try it on a real or demo account?
Partner link · trading carries a high risk of loss
Recovery factor formula
Recovery factor = Net profit ÷ Maximum drawdown
- Net profit: gross profit minus gross loss, after spreads, commissions and swaps, in account currency.
- Maximum drawdown: the largest peak-to-trough fall, in the same currency, measured on balance or equity.
Both values must cover the same period and use the same currency. Otherwise the ratio means nothing.
Worked example (hypothetical)
Take two strategies tested on the same market over the same period. Both end with the same net profit, P.
| Strategy | Net profit | Maximum drawdown | Recovery factor |
|---|---|---|---|
| A | P | Small drawdown, D(A) | P ÷ D(A) |
| B | P | Larger drawdown, D(B) | P ÷ D(B) |
Both strategies made the same profit. A reached it with a shallower worst fall, so A has the higher recovery factor. B made the same money but took deeper losses along the way. To try this with your own figures, use the tools on the calculators page.
Where the term appears
- MetaTrader 5 Strategy Tester: the backtest report shows "Recovery Factor" next to profit factor, expected payoff and drawdown figures. See MetaTrader 5.
- Trading reports and signal statistics: copy-trading and strategy-monitoring pages often show it next to the equity curve.
- Fund and algo-trading reviews: it is used to compare strategies, often alongside the Calmar ratio.
Check how each report measures drawdown before you compare figures. Some use balance, some use equity, and some state drawdown as a percentage instead of an amount.
Precise definition and edge cases
- Balance vs equity: equity drawdown includes floating losses on open trades, so it is usually deeper. The recovery factor based on equity is therefore usually lower.
- No drawdown: if the maximum drawdown is zero, the ratio cannot be calculated. This usually means the sample is too short.
- Losing strategy: when net profit is negative, the ratio is negative and shows only that the strategy lost money.
- Period length: net profit grows with time, but the maximum drawdown records only the worst event. A longer test can raise the ratio without the strategy getting any better. The Calmar ratio corrects for this by using annualized return instead.
- Backtest vs live: backtests can miss slippage, spread widening and tail risk. A black swan can produce a deeper drawdown than any test showed.
- It is not a guarantee: a high past recovery factor says nothing certain about future results.
Leveraged forex and CFD trading can lose money fast. A drawdown can exceed anything seen in testing. Read more in risk management.
Related terms
Frequent questions
What does a high recovery factor mean?
The strategy made a large net profit compared with its worst peak-to-trough fall in the period measured.
Is recovery factor the same as profit factor?
No. Profit factor divides gross profit by gross loss. Recovery factor divides net profit by maximum drawdown.
Why do two reports show different recovery factors for the same strategy?
They may measure drawdown differently (balance or equity, amount or percentage) or cover different periods.
Can I compare recovery factors across different test lengths?
Not reliably. Longer periods tend to raise the ratio. Compare strategies over the same period, or use a ratio based on annualized return.