What is the Recovery Factor?

Recovery Factor (RF) is net profit ÷ maximum drawdown (amount) — a risk-adjusted efficiency metric.

RF = net profit ÷ maximum drawdown (absolute amount)

How to read it

• The higher it is, the more profit earned for a small decline = good capital efficiency.
• RF < 1: the largest decline exceeded the profit earned — possibly not worth the risk.
• It captures the "pain" that a raw return figure hides.

Rather than reading return and max DD separately, RF shows risk-adjusted return at a glance. It serves a similar purpose to the Sharpe ratio.