Drawdowns and losing streaks: what's normal and how to survive them

Every strategy has losing streaks, including the good ones. Traders don't blow up their accounts because they hit a streak. They blow up because they didn't expect one, and responded by trading bigger to win it back.

Losing streaks are more common than you think

If you flip a coin 100 times, you'll very probably see five tails in a row somewhere. Trading works the same way. Here's the chance of seeing at least one run of losses of a given length in 100 trades:

• With a 50% win rate: 5 losses in a row, 81%. 6 in a row, 55%. 8 in a row, 17%.
• With a 40% win rate: 5 in a row, 98%. 6 in a row, 87%. 8 in a row, 49%.
• With a 60% win rate: 5 in a row, 46%. 6 in a row, 21%. 8 in a row, 4%.

A trader with a solid 2:1 risk-reward and a 40% win rate has roughly even odds of hitting eight losses in a row over 100 trades. That isn't the strategy failing. It's what 40% looks like.

What a streak costs at different risk levels

• Risking 1% per trade, ten losses in a row take about 9.6% off your account.
• Risking 2%, the same streak costs about 18%.
• Risking 5%, it costs about 40%.

And the deeper you fall, the harder it is to climb back. After a 10% drawdown you need an 11% gain to recover. After 40% you need 67%. After 50% you need 100%. Our article on how much to risk per trade shows the full table.

Balance drawdown vs equity drawdown

Your balance only changes when trades close. Your equity includes open trades. Some systems, especially grid and martingale Expert Advisors that add to losing positions, show a smooth, rising balance while the equity underneath swings much deeper. When we rebuilt and stress-tested systems like that, the open (equity) drawdown was often several times the closed (balance) drawdown, and a single strong trend could wipe the account. When you judge any track record, ask for the equity drawdown. See how to judge an Expert Advisor.

Rules that keep a drawdown small

• Fixed, small risk per trade. 0.5% to 1% for most people. Never increase it to recover losses.
• A daily loss limit. For example, stop for the day after two losing trades or a 2% loss. Bad days happen. Bad days that turn into revenge trading are what do the damage.
• A weekly or monthly limit. If you're down 6% to 8% for the month, cut your risk in half until you've recovered part of it.
• Watch for correlation. Two trades on EUR/USD and GBP/USD often move together, so they can lose together. Count them as one bigger trade.
• No averaging down. Adding to a losing trade turns a planned loss into an unplanned one.

How to tell a streak from a broken strategy

A losing streak is within what your strategy's numbers say is normal. A broken strategy is something else: losses larger than planned, trades that don't follow your rules, or a market that has changed character, such as a quiet range turning into a strong trend.

Before you start trading, write down the worst drawdown you expect, based on your testing or track record, with some margin added. If you go past it, stop and review. Don't just keep going. And don't change your rules in the middle of a streak because it feels bad. That's usually when good strategies get abandoned just before they recover.

The emotional side

Losing streaks feel personal, and they're when people break their rules. If you notice yourself trading bigger, taking setups you'd normally skip or trading outside your session to make it back, step away. Our article on revenge trading and overtrading covers this in more detail.

Risk note: trading forex carries a high level of risk and may not be suitable for everyone. This article is for education only and is not financial advice.