For Business

Risk & Money Management

How Long Losing Streaks Get

A strategy that wins four trades in ten will, somewhere in its first five hundred trades, lose eleven in a row. Not might — will, in more than half of all careers. This paper shows you how to calculate your own number, what it costs at each level of risk, and how to tell a normal streak from a broken strategy.

Difficulty
Beginner
Reading time
7 min
Pages
8

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The skill

Every trader meets a losing streak, and almost every trader treats it as evidence that something needs fixing — so they change something, in the middle of the run, which is the most expensive habit in retail trading. The whole problem is not knowing what a normal run looks like.

Step one — the number nobody calculates

The only input is your win rate: the plain fraction of trades that end in profit. If you do not know it, that is the first thing to fix, and it is one column of your own history.

Four wins in ten is not a poor strategy — it is what a perfectly good rule looks like when its target is twice the size of its stop.

You can work it out yourself without any simulation. The chance of losing a run of trades is the loss rate multiplied by itself once per trade — at a sixty percent loss rate, eleven in a row is about a 0.4% chance per attempt, and across five hundred trades there are five hundred attempts.

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