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Losing streak

Also called: Consecutive losses · Drawdown run

Losing streak — The longest run of consecutive losing trades in a period — the thing that ends accounts, and the thing every win rate guarantees you will meet.

Every positive-expectancy strategy produces losing streaks, and they are longer than intuition suggests. The streak is not a sign that the edge stopped working — it is what an edge looks like from inside, and confusing the two is how people abandon working systems.

In plain English

A losing streak is simply the longest run of consecutive losses in your record. Its importance is that it is the mechanism by which drawdowns actually happen: a drawdown is a streak plus a position size, and neither part causes damage alone.

The length is predictable. At a 50% win rate, the chance of ten losses in a row on any given sequence is about one in a thousand — which sounds remote and is not, because a thousand trades is a few years of ordinary activity. At 35%, ten in a row is roughly one in fifty. Streaks people describe as unbelievable are ordinary output.

The practical consequence is that streak length has to be survivable by design. If a run of ten losses at your current risk would put the account somewhere you would stop trading, the risk is too high — not because ten in a row is likely this month, but because it is certain eventually.

The formula

Worked example — the demo account

The bundled demo account: 96 closed trades at a 51.04% win rate.

A longest run of 4 against an expectation of about 6 — an ordinary sample, if anything a mild one.

That is the useful reading: nothing unusual happened. A four-trade losing run at a 51% win rate is entirely unremarkable, and the account went on to finish +$4,293.45 up.

The number to plan around is not this one, though — it is the streak this strategy would produce over a thousand trades rather than ninety-six, which is roughly ten. Four consecutive losses at $157.44 each is about $630; ten would be $1,574, or a little over 6% of the opening balance. That is survivable, and it is the calculation worth doing before it happens rather than during.

Every figure above is from the demo account TapeSheet ships with — 96 closed trades, generated from a fixed seed. Open the same account →

What this does not tell you

The caveat is the part worth reading. Most tools put it in a footer, if they print it at all.

• Nothing about whether the edge is intact. A streak is compatible with a working strategy and with a broken one, and the streak alone cannot distinguish them. That determination needs a much larger sample than the streak itself.
• Nothing about the money, because it counts trades rather than currency. Four losses at 1R and four at 2.5R are the same streak and very different events — which is why TapeSheet shows the streak’s total alongside its length.
• It assumes independence, and trading is not independent. Correlated positions lose together, and a regime that suits your strategy poorly produces clusters that no coin-flip model predicts.
• The longest streak in a small sample understates the future. Expected streak length grows with the log of the trade count, so your worst run so far is a floor, not a ceiling.

Where TapeSheet shows it

The Streaks tile on the Overview shows the longest winning and losing runs together with the money each accumulated, because the length alone is only half of the event.

Questions

Related terms

• Win rate — The share of your closed trades that finished in profit.
• Maximum drawdown — The largest fall from a peak in your account to the lowest point that followed it, before a new peak was made.
• Position sizing — Deciding how many lots to trade from how much you are willing to lose — the single decision that most determines whether an edge survives long enough to pay.
• Expectancy — The average amount you win or lose per trade, across every trade — the arithmetic mean of your results.

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