Calculation of stock price decline, break-even point, profit increase, and risk control

PortfolioAlert · 2026-02-11T09:57:45+00:00

The article explains the relationship between the decline percentage and the required increase to break even, emphasizing that the difficulty of recovering increases significantly after a drop of more than 15%. It recommends cutting losses promptly when the decline exceeds 15% to control risk. Additionally, it provides data on the recovery increase needed for different decline percentages, indicating that small declines can be handled linearly, while large declines require strict discipline to prevent further losses.

PortfolioAlert

2026-02-11 09:57:45

Abstract generation in progress

Here’s an insightful passage about price fluctuations:

There is a golden standard in the industry: when the underlying asset drops 15%, you should sell.
Specifically, when it declines by X%, it needs to rise by Y% to recover. The relationship between X and Y is linear between 0-15%, and becomes exponential beyond 15%. For example, a 50% decline requires a 100% increase to recover. A 1% decline can be recovered with about a 1% increase, as shown in the chart below:

3. Why should you sell after a 15% decline?

Calculations show that a 15% drop requires approximately a 17.6% increase to break even (exactly 17.647%). Once the decline exceeds 15%, the difficulty of recovering increases sharply:

20% decline → 25% increase needed
30% decline → 42.9% increase needed
50% decline → 100% increase needed
70% decline → 233% increase needed

Therefore, 15% is a critical risk control point. Cutting losses in time can prevent falling into a recovery trap.

4. Common decline and recovery percentage table

Decline (%)	Recovery Needed (%)	Approximate Calculation
1%	1.01%	1%
5%	5.26%	5.3%
10%	11.11%	11.1%
15%	17.65%	17.6%
20%	25.00%	25%
30%	42.86%	42.9%
40%	66.67%	66.7%
50%	100.00%	100%
60%	150.00%	150%
70%	233.33%	233%
80%	400.00%	400%
90%	900.00%	900%

5. Practical advice

Small declines (<5%): Recovery percentage is slightly higher than the decline, approximately linear.
Moderate declines (5%-15%): Recovery percentage gradually deviates from linearity; use formulas or tables to assess risk.
Large declines (>15%): Strictly adhere to stop-loss discipline to avoid falling into a “recovery quagmire.”

Understanding this mathematical relationship helps in rational decision-making and enhances risk awareness. In investing, it’s better to accept small losses than to be deeply trapped, ensuring long-term survival.

P.S.: Personally, I believe that for assets held with a long-term positive outlook, even if trapped, one can turn losses into gains through dollar-cost averaging and strategic buy-low-sell-high tactics.

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