Recovery Factor
Net profit divided by maximum drawdown, measuring risk-adjusted returns.
Full Definition
Recovery factor is a performance metric calculated by dividing total net profit by maximum drawdown, producing a simple measure of how much return was earned relative to the worst loss experienced. A recovery factor of 3 means the strategy earned three times its worst drawdown. Higher values indicate better risk-adjusted performance, and professional traders often look for a recovery factor above 2 as a minimum threshold for viable strategies.
The recovery factor complements other metrics like profit factor, Sharpe ratio, and Sortino ratio because it focuses specifically on the relationship between upside and drawdown risk. Two strategies with identical profit factors can have very different recovery factors if one accepts larger drawdowns to earn those profits. Conservative strategies with controlled drawdowns and steady compounding tend to produce higher recovery factors than aggressive strategies that swing wildly between equity peaks and troughs.
For example, if a strategy produced $50,000 in net profit over 3 years with a maximum drawdown of $10,000, the recovery factor is 5.0. That means the strategy earned five times its worst loss, which is a strong result. If another strategy earned the same $50,000 but had a maximum drawdown of $25,000, the recovery factor drops to 2.0, which is acceptable but meaningfully weaker for comparable returns. The ratio tells you how efficiently the strategy generated returns relative to the pain of the biggest loss.
In copy trading, recovery factor is one of the key metrics to evaluate before subscribing. SteadyFlowFX's verified Myfxbook track record shows a strong relationship between the 12 percent average monthly net return over 3 years and the 34.2 percent max drawdown, producing a favorable recovery factor. Combined with the 1.73 profit factor and 71.3 percent win rate, the numbers indicate a strategy that earns substantial returns relative to its worst drawdown. When evaluating any copy trading service, checking recovery factor alongside profit factor and drawdown gives a fuller picture of risk-adjusted quality.