Drawdowns and losing streaks
Why losses hurt more than gains help, and how long streaks get. · 5 min
A drawdown is the fall from a peak. Getting back takes a bigger percentage gain than the loss, because the gain applies to a smaller balance:
gain needed = 1 ÷ (1 − drawdown) − 1
| Drawdown | 10% | 20% | 30% | 50% | 75% |
|---|---|---|---|---|---|
| Gain to recover | 11.1% | 25.0% | 42.9% | 100.0% | 300.0% |
Losing streaks are longer than intuition suggests. A coin-flip system has better-than-even odds of losing six in a row somewhere in 100 trades. At 2% risk a streak of 10 costs 18.3%; at 5% it costs 40%. Risk per trade is the lever that keeps streaks survivable.
Losing streaks and drawdowns
Expect a worst streak of about 6.0 losses in a row
| Losses in a row | Chance in 100 trades | Drawdown at 2% risk | Gain needed to recover |
|---|---|---|---|
| 3 | >99.9% | 5.9% | 6.2% |
| 5 | 81.0% | 9.6% | 10.6% |
| 7 | 31.8% | 13.2% | 15.2% |
| 10 | 4.4% | 18.3% | 22.4% |
A 50% win rate has better-than-even odds of six losses in a row somewhere in 100 trades. Size so that such a streak is survivable.