Trading Psychology · Intermediate · 5 min
Handling losing streaks
You can estimate how often losing streaks occur, show how risk per trade decides their damage and plan your response in advance.
Five, six, seven losses
Five losing trades in a row. Then six. At some point it starts to feel personal, as if the market had noticed you and decided to take your money.
It has not. Losing streaks are a normal part of any rule that can lose, and they are much more common than most people expect. Knowing how common they are, and planning for them, is what keeps a streak from turning into a disaster.
Streaks are normal
A losing streak is a run of consecutive losing trades. People tend to underestimate how often they occur, because at any single point a long streak is unlikely. Five losses in a row with a 50% chance of losing have a probability of about 3% at one particular point. But over 100 trades, there are almost 100 points where a streak can begin.
Calculated over 100 independent trades:
- With a 50% win rate, the chance of at least one streak of five or more losses is about 81%. Seven or more: about 32%.
- With a 40% win rate, the chance of five or more is about 98%. Eight or more: about 49%.
Real trades are not perfectly independent, and real win rates change over time, so these numbers are a guide, not a promise. The message is clear, though: long streaks will happen to almost anyone who trades long enough.
What you can control is the cost of each loss. The same streak hurts very differently depending on the risk per trade:
- Seven losses at 1% risk: about −6.8%.
- Seven losses at 5% risk: about −30.2%.
- Seven losses at 10% risk: about −52.2%.
And deep drawdowns are not only a matter of money. A study of 80 day traders found that those with more intense emotional reactions to gains and losses performed significantly worse. A smaller drawdown is easier to sit through calmly.
Seven percent or thirty
A fictional rule wins half the time with +1.5R and loses with −1R. Here are 30 trades from it, including a streak of seven losses, starting from 10,000.
- Risking 1% per trade, the streak takes the balance down about 7%. The trader can follow the plan and wait for the rule to recover.
- Risking 5%, the same streak costs about 30%. Recovering from that requires a gain of about 43%.
Both lines end above the start, because the rule is positive on average. But the trader on the 5% line would have needed to keep trading calmly through a 30% loss. Many people abandon a rule, or start revenge trading, long before that.
Common mistakes
- "I'm due for a win." Past losses do not raise the chance of the next trade winning.
- Raising size to recover. It deepens the drawdown if the streak continues.
- Dropping a rule after a normal streak. Check first whether the streak is unusual for that rule.
- No plan in advance. Decide now what changes at what drawdown, for example halving risk at −10%.
The takeaway
Losing streaks are normal. A small risk per trade keeps them survivable, and a plan made in advance keeps you calm.
Check yourself
Quick quiz
4 questions. Instant feedback, nothing is saved.
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1Tap the line that suffers most during the same losing streak.
Tap the chart.
The streak is the same for both lines. Risking 5% per trade makes seven losses cost about 30% instead of about 7%.
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2A rule wins 50% of the time. How likely is a streak of at least five losses somewhere in 100 trades?
Five losses in a row are rare at one particular point, but over 100 trades there are many points where a streak can start.
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3What does seven losses in a row cost when risking 1% of the account per trade?
0.99 to the power of 7 is about 0.932, so the account is down about 6.8%.
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4What is a sensible plan for a long losing streak?
A plan made in advance avoids decisions under stress. Reducing risk limits the damage while you check whether something has changed.
of 4 correct.