Drawdowns look different when measured in trades

[Fairman]

Drawdowns look different when measured in trades

A scalper with a thousand trades a month will experience losing streaks that would take a swing trader years to see. A run of fifteen losers in a row, from a strategy that wins 60 percent of the time, is not impossible. It happens, and the maths is predictable.

For a 60 percent winner, the chance of a run of ten losses somewhere in a few thousand trades is far from negligible. Planning for it matters.

The emotional impact is different too. A streak of small losses over an hour feels like a collapse, even if the account is barely down.

Simulating the strategy's own statistics with random sequences gives a feel for the expected worst streak. It shows what is normal, so that a bad stretch does not trigger panic changes.

Position size should survive the expected worst streak with room to spare. A strategy that is sound but sized so aggressively that normal streaks threaten the account is a time bomb.

A rough rule is sizing so that the longest streak expected in a thousand trades would cost no more than a modest slice of the account. That slice is the one the trader can tolerate emotionally, which is a different number from the one the maths allows.

What is the longest losing streak in the log, and what does a simulation say it should be?