What does a recovery factor below 1 mean?

It means the deepest decline of the record was larger than the total net profit. The strategy may still be profitable overall, but at its worst point it had given back more than it finally kept. Whether that is acceptable depends on the account limits it must respect.

Why does my recovery factor improve when I test a longer period?

Because net profit accumulates with the number of trades while the worst drawdown usually deepens more slowly. The improvement can be real statistics, not a better strategy. Compare periods of the same length, or use an annualized measure such as the Calmar ratio.

Recovery factor

The recovery factor is the net profit of a trading record divided by the absolute value of its maximum drawdown, both in the same currency. It states how many times the strategy earned back its worst peak-to-trough decline over the tested period.

Senzoukria · Glossary · Updated September 2026

At a glance

Formula: Net profit ÷ |maximum drawdown|
Unit: None (both terms in dollars)
Below 1: The worst drawdown was larger than everything earned
In Senzoukria: Performance panel, Risk section; ∞ when there was no drawdown

Computation

Build the cumulative profit and loss of the closed trades in order, find the deepest fall from a running peak, and divide the final net result by that depth. A record that ends at +12,000 after a worst decline of −4,000 has a recovery factor of 3.0: the net result is three times the worst stretch. A losing record has a negative recovery factor, and a record that never fell from a peak has no finite value.

The figure is popular in platform reports because it combines the two quantities traders look at first, total profit and worst drawdown, into one comparison without needing an account size.

Reading it correctly

It is not scale free in time. For a strategy with a positive average trade, net profit tends to grow roughly in proportion to the number of trades while the maximum drawdown grows more slowly, so the same strategy shows a higher recovery factor over two years than over two months. Compare runs of similar length.
It depends on one path. Reshuffling the same trades usually produces other maximum drawdowns and therefore other recovery factors.
It says nothing about duration. Two records with the same factor can have spent a week or a year under water; read it with the underwater period.
It is only as honest as the drawdown under it. A drawdown measured on closed trades misses the open loss lived inside a trade.

In Senzoukria

The Performance panel of the Replay screen shows Recovery factor in its Risk section with the hint: net P&L divided by max drawdown, how many times the worst stretch was paid back. It uses the same trade-by-trade equity curve as Max drawdown, measured on closes; when the curve never fell from a peak the panel shows ∞ rather than an arbitrary large number. The backtest assistant receives the recovery factor along with max drawdown and the ulcer index when it comments on a run.

For prop firm questions the panel's drawdown figures are complemented by the Drawdown zones and the Monte Carlo on accounts, because a firm measures drawdown against its own floor, not against the curve's history.

Common mistakes

Ranking a two-month test against a two-year test by recovery factor.
Treating a factor of 5 on 15 trades as evidence: one large winner can produce it.
Confusing it with the Calmar ratio, which annualizes the return and uses percentages.

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Frequently asked questions

What does a recovery factor below 1 mean?: It means the deepest decline of the record was larger than the total net profit. The strategy may still be profitable overall, but at its worst point it had given back more than it finally kept. Whether that is acceptable depends on the account limits it must respect.
Why does my recovery factor improve when I test a longer period?: Because net profit accumulates with the number of trades while the worst drawdown usually deepens more slowly. The improvement can be real statistics, not a better strategy. Compare periods of the same length, or use an annualized measure such as the Calmar ratio.

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