A run of losses makes most traders doubt the strategy. Often the run is ordinary for that win rate, and the real problem is that the risk per trade was set without knowing how long a run to expect. You can work that out first.
The streak to expect
Over a series of trades, a rough guide to the longest run of losses is:
Over 200 trades that gives:
| Win rate | Losses in a row to expect |
|---|---|
| 30% | about 15 |
| 40% | about 10 |
| 50% | about 8 |
| 60% | about 6 |
| 70% | about 4 |
These are typical figures, not ceilings. The formula treats each trade as independent, and real trades often are not: several positions can lose together on one bad day. Expect to meet a run at least this long, and sometimes longer.
What the streak costs
Risking a fixed percentage of the account on each trade, ten losses in a row cost:
| Risk per trade | Account down after 10 losses |
|---|---|
| 0.5% | 4.9% |
| 1% | 9.6% |
| 2% | 18.3% |
| 3% | 26.3% |
| 5% | 40.1% |
A 40% win rate with 2:1 winners is a sound profile on paper. At 5% risk its expected losing run takes two fifths of the account, and few people keep following a plan through that.
Using the two tables
- Find your win rate in the first table and read off the streak.
- Decide the largest fall in the account you could sit through without changing anything.
- Pick the risk per trade that keeps the streak inside that figure.
If you do not know your win rate yet, assume it is lower than you hope and size for the longer streak.
The point: choose the risk per trade so the losing streak you should expect is one you can sit through. Decide it before the streak, because during it you will choose badly.