When calculating the increase in share price required to overcome a downturn, investors face substantial risk. For example, a 1% loss in-stock may not appear significant because it only requires a 1.01 percent rise to return to its prior high. A 20% drop, on the other hand, necessitates a 25% recovery to the previous high. A 50 percent drop, as witnessed during the Great Recession of 2008–2009, necessitates a massive 100 percent rebound to reclaim the previous high.
Before reducing their losses and changing the position into cash, some investors want to prevent drawdowns of more than 20%.