Losing streaks: is eight in a row bad luck or a broken edge?

[FXS London Scalper]

Eight losing trades in a row on a main setup rattles almost anyone, often more than the money does. Before abandoning a system, it's worth checking whether the streak is unusual.

The arithmetic. Say the setup wins 52% of the time. The chance that a given run of eight trades all lose is 0.48 to the power 8, about 0.28%. That sounds tiny, but over 600 trades a year there are hundreds of overlapping windows, and a quick simulation shows a streak of eight or more turns up in a large share of years. You can run it yourself in a few lines of Python: draw 600 trades with p=0.52, record the longest losing run, repeat 10,000 times.

So a streak like that is unpleasant, but not evidence on its own.

What to check to be sure:

• Were the trades valid by your rules, or were some lower-quality entries?
• Did costs or fills change? Compare slippage with your normal level.
• Was the market different? Much smaller ranges, for example, can plausibly hurt a breakout setup.

If the trades were valid, costs normal, and the market merely quiet, keeping the same size is defensible. If quality slipped or fills changed, that's a different answer.

How do others decide? Do you set a streak number in advance that triggers a review?

[Amanhasnoname]

I had a run of nine losses on a breakout system last spring and nearly switched it off. Before I did, I ran the simulation you describe with my own win rate, which is a bit lower than yours, and a streak that long showed up in more than half the simulated years. That took a lot of the panic out of it.

The check that mattered most for me was the second one on your list. When I compared fills during the streak against the previous two months, my average slippage was almost the same, and every trade met the rules. The market had just been unusually compressed, with daily ranges well under normal, which is the worst environment for a breakout.

I do set a number in advance now. For that system it is twelve consecutive losses or a drawdown of eight R, whichever comes first. Hitting either one means I stop for the week and review, not that I abandon it. Having the trigger written down stops me from deciding at the bottom of a bad day, when my judgement is at its worst.