Advanced · Lesson 7 of 9 · 6 min read
Losing streaks and drawdowns
Every strategy, even a good one, has runs of losses. Knowing what is normal stops you abandoning a good plan, and the right risk per trade makes sure you survive them.
Streaks are normal
Over 100 trades with a 50% win rate, there is about an 80% chance of 5 losses in a row and a 55% chance of 6. With a 40% win rate, there is nearly a 90% chance of at least 6 losses in a row, and about a 50% chance of 8. None of that means the strategy is broken.
Expect the streak before it comes. Set your risk so that 10 losses in a row would hurt, but not finish you.
Why risk per trade matters
| Risk per trade | After 10 losses in a row | After 20 losses in a row |
|---|---|---|
| 1% | Down about 10% | Down about 18% |
| 2% | Down about 18% | Down about 33% |
| 5% | Down about 40% | Down about 64% |
Why big drawdowns are so hard to fix
| If you lose | You need to gain this to get back |
|---|---|
| 10% | 11% |
| 20% | 25% |
| 30% | 43% |
| 50% | 100% |
What to do during a bad run
- Check the journal: did you follow your plan? If not, that is the thing to fix.
- Compare with your testing: if your backtest had streaks this long, this may be normal.
- Reduce size, for example to half after a 10% drawdown, until things settle.
- Stick to your daily limits and take a break when you hit them.
- Do not change strategy in the middle of a streak.
A trader with a 45% win rate hits 7 losses in a row at 1% risk: down about 7%. Their Replay testing showed a worst streak of 8, so this is within normal. They keep following the plan, and 6 of the next 10 trades win.
The same streak at 5% risk would have left them down about 30%, needing over 40% just to get back, and far more likely to panic and quit a working plan.
Common mistakes
- Doubling the size to win losses back.
- Switching strategy after a few losses.
- Risking more than 1 to 2% a trade.
- Not knowing how long your normal losing streaks are.
Check yourself
1. With a 50% win rate over 100 trades, are 5 losses in a row unusual?
No. It happens about 80% of the time.
2. You lose 50% of your account. How much do you need to gain to get back?
100%.
3. What should you do first during a losing streak?
Check your journal to see whether you followed your plan.
Try it on BTM
For education only, not financial advice. Trading carries a high risk of losing money, especially with leverage. Only trade with money you can afford to lose.
For educational purposes only. Nothing here is financial advice. Past performance does not guarantee future results, and trading carries a high risk of losing money, so only trade with money you can afford to lose. Read the risk warning.