How drawdown from a losing streak is calculated
When you risk a fixed percentage of your balance, each loss is a little smaller than the last because the balance has shrunk. That means drawdown compounds rather than adding up in a straight line.
Eight losses at 1% is a 7.7% drawdown, not 8%. The difference is small at low risk and large at high risk: eight losses at 5% is a 33.7% drawdown.
Why recovering is harder than losing
A drawdown always needs a bigger percentage gain to recover, because you are growing a smaller balance.
| Drawdown | Gain needed to recover |
|---|---|
| −5% | +5.3% |
| −10% | +11.1% |
| −20% | +25.0% |
| −30% | +42.9% |
| −50% | +100.0% |
This is the strongest argument for keeping risk per trade small. Small drawdowns are easy to climb out of. Large ones can take months.
How likely is a losing streak?
Most traders badly underestimate this. With a 50% win rate, the chance of hitting at least 5 losses in a row somewhere in 100 trades is about 81%, and 6 in a row is still 55%. At a 45% win rate, which is typical for 1:2 strategies, a 6-loss streak in 100 trades happens about 73% of the time.
The calculator works this out exactly for your own win rate and number of trades. If a streak that size would breach your account or prop firm limit, your risk per trade is too high for your strategy, however good it is.
What to do during a losing streak
- Check whether you followed your rules. A streak of valid setups is variance. A streak of rule breaks is a discipline problem, and the fix is different.
- Do not increase size to win it back. Revenge sizing turns a normal drawdown into a blown account.
- Consider halving risk after a set drawdown, such as 5%, until you are back near your high.