As an example here lets say you start with $10,000 and loose $5000 from a string of bad trades. That $5000 loss represents a 50% loss on your account which now has $5000 left in it. Now ask yourself this question. What percentage gain will you need to make on the $5000 left in your account in order just to be back to breakeven (the $10,000 level) on your account? If you have done the math correctly you will see that in order to make back the 50% loss you took on your account you will need to make a 100% return or basically be twice as successful in your comeback as you were unsuccessful in your drawdown.
It is this concept that is one of the most important to understand in
trading, as it underscores the importance of protecting one's trading
capital, as it shows the difficulty of coming back from a loss in
relation to the ease of taking a loss. It is also most traders lack of
understanding of this concept that causes them to take risks which are
way to large and is a major contributor to the high failure rate among