🎯 In 30 seconds: Every trading method has losing streaks, and they are longer than most people expect. With a 50% win rate, the chance of at least six losses in a row somewhere in 100 trades is about 55%. With a 40% win rate, eight in a row happens about half the time. A drawdown is the fall from your account's high to its low. If you risk 1% per trade, normal streaks cost you 5% to 10%. If you risk 5%, the same streaks can cost 40%. Knowing what normal looks like helps you keep a good method through a bad patch, and spot when something is actually broken.
Drawdown, in plain words
A drawdown is how far your account has fallen from its highest point. If your account peaked at $11,000 and is now $9,900, you are in a 10% drawdown, even if you are still up from where you started.
- Maximum drawdown is the largest peak-to-low fall over a period. It is the single most useful number for "how bad can this get?"
- Recovery is getting back to the old peak. Because of the math of losses, a 10% drawdown needs an 11.1% gain to recover and a 20% drawdown needs 25% (see Risk comes first).
- Time under water is how long you stay below the old peak.
How long losing streaks get
People badly underestimate streaks. If a method wins half the time, ten losses in a row feels "impossible". It is not, especially across many trades.
The table shows the chance of at least one losing streak of a given length somewhere in a run of 100 trades, assuming each trade is independent. These are exact calculations, not simulations.
| Win rate | 3 in a row | 4 | 5 | 6 | 8 | 10 | 12 |
|---|---|---|---|---|---|---|---|
| 30% | >99.9% | >99.9% | 99.9% | 99.0% | 85.8% | 58.0% | 32.9% |
| 40% | >99.9% | 99.9% | 97.6% | 87.3% | 49.0% | 20.5% | 7.7% |
| 50% | >99.9% | 97.3% | 81.0% | 54.6% | 17.0% | 4.4% | 1.1% |
| 60% | 98.8% | 80.1% | 45.9% | 21.2% | 3.6% | 0.6% | 0.1% |
| 70% | 86.4% | 43.3% | 15.3% | 4.8% | 0.4% | under 0.1% | under 0.1% |
The number of trades matters too. More trades means more chances for a long streak:
| Win rate | Trades | 5 in a row | 8 in a row | 10 in a row |
|---|---|---|---|---|
| 40% | 50 | 83.5% | 27.1% | 10.0% |
| 40% | 200 | 99.9% | 75.0% | 38.0% |
| 50% | 50 | 55.2% | 8.4% | 2.0% |
| 50% | 200 | 96.6% | 32.0% | 9.0% |
| 60% | 50 | 25.6% | 1.7% | 0.3% |
| 60% | 200 | 71.4% | 7.4% | 1.2% |
A rough rule of thumb: in N trades, the longest losing streak you should expect is about log(N) / log(1 / loss rate). For 100 trades that is about 9 at a 40% win rate, about 7 at 50% and about 5 at 60%. Plan for longer than that, because "expected" means typical, not worst.
One caveat: real trades are not always independent. If your method stops working in a certain kind of market, losses cluster, and streaks can be longer than these tables suggest.
What a streak costs at each risk level
Here is the drawdown from a straight run of losses, starting at the account's high, with each loss a fixed percentage of what is left:
| Losses in a row | Risk 1% per trade | Risk 2% | Risk 5% |
|---|---|---|---|
| 5 | 4.9% | 9.6% | 22.6% |
| 8 | 7.7% | 14.9% | 33.7% |
| 10 | 9.6% | 18.3% | 40.1% |
| 12 | 11.4% | 21.5% | 46.0% |
Streaks are not the whole story, since wins and losses mix. So here is the full probability, calculated exactly, that the account falls a given amount from a peak at some point within 200 trades:
| Method and risk per trade | Drawdown of 10% or more | 20% or more | 30% or more |
|---|---|---|---|
| Has an edge (45% wins, wins 2x losses), 1% risk | 37.2% | 0.7% | under 0.1% |
| Has an edge, 2% risk | 98.2% | 36.1% | 3.8% |
| Has an edge, 5% risk | >99.9% | 99.9% | 91.3% |
| No edge (50% wins, wins equal losses), 1% risk | 80.9% | 22.2% | 2.3% |
| No edge, 2% risk | 99.8% | 80.7% | 41.3% |
| No edge, 5% risk | >99.9% | >99.9% | 98.7% |
Read the first row carefully. Even a method that makes money on average has better than a one-in-three chance of a 10% drawdown in 200 trades at just 1% risk. At 5% risk, a drawdown of 30% or more is close to certain. This is the strongest argument for small risk per trade.
Recovering from a drawdown
- Check the rules first. Go through every losing trade in the drawdown. Were they valid setups, sized correctly, with stops honored? Losses from broken rules are a discipline problem, not a method problem.
- Compare with what is normal. Use the tables above, or better, your own backtest or long journal history. A 6% drawdown at 1% risk is ordinary. A 25% drawdown at 1% risk is not, and says something has changed.
- Reduce size. A common rule is to halve risk per trade after a set drawdown, for example 10%, and return to normal size after recovering half of it. The trade-off is real: smaller size also slows the recovery. It is a choice to protect capital and your nerves first.
- Trade only your best setup. Narrow the plan to the one setup with the strongest record until things stabilize.
- Take a break if you need one. A few days away often does more than a few more trades.
When a drawdown means stop and review
It is hard to tell bad luck from a broken method, and no rule is perfect. Signs that it is more than bad luck:
- The drawdown is clearly deeper or longer than your tests or past records said to expect.
- Your average loss has grown past -1R, which points to slippage, gaps or stops not being honored.
- The kind of market has changed, for example from steady trends to choppy ranges, and your setups depend on the old conditions.
- Results in the drawdown would make the method's long-run expectancy negative.
Research is a useful reality check here. In the study of Brazilian day traders who kept going for at least 300 days, 97% lost money and the authors found no evidence that traders improved with experience. Persistence alone did not turn losers into winners. A study of day traders in Taiwan did find that a small group of top past performers kept earning, while the worst performers kept losing. Both point the same way: your own long record is the evidence that counts, and continuing to trade through a deep drawdown without reviewing is not a plan.
Stopping is not failure. Paper trading for a month while you rework a method costs nothing, and it keeps your capital ready for when you have something that works.
Try it
Use the backtester on a simple rule and note its win rate and maximum drawdown. Look up that win rate in the streak table and write down the losing streak you should be ready for in 100 trades. Then compute how much that streak would cost at your risk per trade. Finally, write your three drawdown rules (cut size, stop, return to paper) into your plan and apply them in the paper portfolio.
- Your account peaked at $11,000 and is now $9,900. What is your drawdown? Answer: 10%, even if you are still up from where you started.
- With a 50% win rate, what is the chance of at least six losses in a row somewhere in 100 trades? Answer: About 55% (54.6% in the table).
- What drawdown do 10 losses in a row cause at 1% risk per trade, and at 5%? Answer: About 9.6% at 1% risk and about 40.1% at 5% risk.
- You are in a drawdown and want to raise your size to make it back faster. What does the chapter say? Answer: Do not. Cut size in a drawdown, never raise it. A common rule is to halve risk per trade after a set drawdown such as 10%.