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The arithmetic of losing
A loss always takes a bigger gain to undo, and long losing runs turn up more often than they feel like they should. Three tables to keep in mind before you size your next trade.
The gain it takes to get back
A 50% loss needs a 100% gain to recover. A 20% loss needs 25%. The deeper the loss, the faster the gain needed to recover it grows.
The chance of a losing streak
| Win rate | 3 in a row | 5 in a row | 6 in a row | 8 in a row | 10 in a row | 12 in a row | 15 in a row |
|---|---|---|---|---|---|---|---|
| 30% | >99% | >99% | 99% | 86% | 58% | 33% | 12% |
| 35% | >99% | >99% | 96% | 69% | 37% | 17% | 5% |
| 40% | >99% | 98% | 87% | 49% | 20% | 8% | 2% |
| 45% | >99% | 92% | 73% | 31% | 10% | 3% | <1% |
| 50% | >99% | 81% | 55% | 17% | 4% | 1% | <1% |
| 55% | >99% | 65% | 36% | 8% | 2% | <1% | <1% |
| 60% | 99% | 46% | 21% | 4% | 1% | <1% | <1% |
The chance of at least one run of that many losses in a row somewhere in 100 trades, if each trade wins independently at that rate. A strategy that wins 35% of the time sees eight losses in a row somewhere in a hundred trades about two times in three.
What a streak does to the account
| Risk per trade | 5 losses | 10 losses | 15 losses | 20 losses |
|---|---|---|---|---|
| 0.25% | −1.2% | −2.5% | −3.7% | −4.9% |
| 0.5% | −2.5% | −4.9% | −7.2% | −9.5% |
| 1% | −4.9% | −9.6% | −14.0% | −18.2% |
| 2% | −9.6% | −18.3% | −26.1% | −33.2% |
| 3% | −14.1% | −26.3% | −36.7% | −45.6% |
| 5% | −22.6% | −40.1% | −53.7% | −64.2% |
Each loss takes the stated share of what is left of the account. At 1% a trade, ten straight losses cost under 10%. At 5% they cost 40%, which then needs a 67% gain to recover.
What to do with this
Pick the risk per trade from the worst streak you expect. If your strategy wins 40% of the time, plan for ten losses in a row, and size so that ten losses is a setback rather than the end.
To see these numbers for your own win rate and payoff, with the spread of outcomes, use the strategy odds simulator. To size a single trade, use the position size calculator.
Common questions
How much do I need to gain to recover a 50% loss?
A 50% loss needs a 100% gain to recover. The gain needed is loss ÷ (1 − loss): a 20% loss needs 25%, a 30% loss needs about 43%, and a 75% loss needs 300%.
What is a drawdown in trading?
A drawdown is the fall in an account from its highest value to a later low, usually given as a percentage. The maximum drawdown is the deepest such fall over a period, and it measures how painful a strategy is to hold.
What is the chance of a long losing streak?
It depends on the win rate and the number of trades. Over 100 trades with a 50% win rate, the chance of at least 6 losses in a row is about 55%; with a 30% win rate, a 10-trade losing streak happens more often than not (about 58%).