How Rare Is Your Losing Streak?

[Fairman]

How Rare Is Your Losing Streak?

A trader with a 50 percent win rate has just lost seven trades in a row and feels something is wrong. How unusual is that over 100 trades?

Use the known figure for runs. For a fair 50 percent system over 100 trades, the probability of at least one run of five losses is about 81 percent. Of at least seven losses: about 32 percent. Of at least ten losses: about 4 percent.

So a seven-trade losing streak happens in roughly one of every three hundred-trade stretches. It is not common, but it is far from remarkable.

Now consider the trader's actual experience. If they have taken 400 trades, the chance that a seven-run has occurred at least once is much higher, close to 80 percent. They have just reached the part of the distribution they should have expected.

What does this imply for behavior? A fixed review trigger for streaks should be set above what chance would produce regularly. For this strategy, a streak of ten losses, or a drawdown beyond the tested maximum, would be a reasonable trigger.

Contrast with a trader who has a 40 percent win rate. For them, a seven-loss run in 100 trades has a probability of about 69 percent.

Check your system's expected streak length before you experience one.

Practical note: streaks are independent of what comes next, so the next trade has the same odds as the last.

Exercise: look up or simulate the streak probabilities for your own win rate and trade count.