Losing streak maths

[Shadow Trader]

Losing streaks happen to every system. The question is how long they should be expected to last.

A rough rule: for a system with a given win rate, the longest expected losing streak in N trades is approximately the log of N divided by the log of one over the loss rate. With a 50 percent win rate over a hundred trades, a streak of six or seven losses is entirely normal. With a 60 percent win rate over five hundred trades, a streak of seven or eight shouldn't surprise anyone.

Streaks that long feel catastrophic when they occur, and the temptation is to abandon the system or change something. In most cases, the right response is to check execution against the plan, confirm that conditions haven't changed, and continue at normal size.

Knowing the expected streak in advance changes the experience. A streak that falls within the calculation is variance, and a streak well beyond it deserves investigation.

What's the longest realistic losing streak for the current win rate, and is risk sized to survive it?