Drawdown and losing streaks
Losing streaks are uncomfortable but expected. The size of each loss is set by position size and stop distance, not by luck. When risk per trade is small, a streak costs less and the account survives to trade again.
Why a run of losses feels like a fault when nothing has broken
A losing streak is a sequence of trades that all closed at a loss. It has no memory. The market does not know how many trades you have taken, and it does not adjust to punish you. If your method wins about half the time over many trades, then runs of four, five or six losses appear inside that record. They are part of the same result, not a departure from it.
The discomfort comes from the order of events, not the number of losses. A streak of six arrives as one bad week, and a week is long enough to feel like a trend. Counted across a year, those same six losses are a small block inside a much larger set of trades. The account falls in a straight line, and a straight line downwards is easy to read as evidence that the method has stopped working.
Nothing in the account can tell you whether the method has changed. Only a change in your own behaviour can do that. If the losses all came from planned stops, the method produced them. If some came from trades you entered without a stop, or moved a stop to avoid a loss, the streak is telling you about your process rather than the market.
What the fall from the peak measures that the balance does not
The balance is a single number at a single moment. Drawdown describes the journey that produced it. An account can sit at R9 800 after two very different paths. It might have risen from R9 000 and never been higher. It might have reached R11 500 first and fallen back. The second account is in a drawdown of R1 700 from its peak, which is 14.8% of R11 500. The first has no drawdown at all.
That difference matters because the peak is the level you compare yourself against. A balance of R9 800 feels like a gain if you started at R9 000, and like a loss if you were once at R11 500. Both readings are true. The figure that describes your risk is the distance from the peak, because that is the amount the account has to recover before it returns to its best level.
Recovery is not symmetrical with the fall. From R11 500 down to R9 800 is a fall of 14.8%. To climb from R9 800 back to R11 500 needs a gain of R1 700 on a base of R9 800, which is 17.3%. The deeper the drawdown, the larger the percentage gain needed to undo it. This is why a small risk per trade protects more than the rand amount it saves.
Why fixed risk keeps a streak survivable
Risk per trade is the amount you accept losing if the stop is hit. It is set before the trade, not after. If the balance is R9 800 and risk is 2%, the amount at stake is R196. That figure does not change because the last trade lost. It is calculated from the current balance, so it shrinks slightly as the account shrinks and grows as the account grows.
A streak of six losses at 2% does not remove 12% of the account, because each loss is taken from a smaller balance than the one before. The falls compound. Starting at R10 000, six losses at 2% leave roughly R8 860, a fall of about 11.4%. The exact figure depends on rounding, spreads and any commission or swap charged, so treat it as an estimate rather than a promise.
The alternative is to raise the stake after a loss to recover faster. That makes each later loss larger than the one before, so the same six trades cut far deeper. The method did not change. Only the size did. Keeping risk fixed and small is what allows the account to be present for the trades that follow the streak.
Six losses in a row at 2% risk
| Step | Amount | Note |
|---|---|---|
| Starting balance | R10 000 | assumed account size |
| Risk per trade | 2% | R200 on the first trade |
| Trade 1 loss | R200 | 2% of R10 000 |
| Trade 2 loss | R196 | 2% of R9 800 |
| Trade 3 loss | R192 | 2% of R9 604 |
| Trade 4 loss | R188 | 2% of R9 412 |
| Trade 5 loss | R184 | 2% of R9 224 |
| Trade 6 loss | R181 | 2% of R9 040 |
| Balance after six losses | R8 860 | R9 040 minus R181, rounded |
| Drawdown from peak | 11.4% | R1 140 fall from R10 000 |
The broker may round position sizes, charge spreads, commissions or swaps, and quote USD/ZAR around 18.4100 with its own spread. These costs can make the actual loss slightly larger.
Doing it once, step by step
You are about to record a streak on paper, once, in order, so that the numbers are visible rather than felt.
- 01
Write down the peak balance
Take the highest balance the account has reached and write it at the top of the page. If you have no live account, use R10 000 as the starting figure. This is the level every later number is measured against.
- 02
List each loss in order
Under the peak, write the balance after each losing trade in the sequence. Do not write the reason yet. Six lines is enough to show the shape of a streak.
- 03
Calculate the fall from the peak
Subtract the lowest balance on the list from the peak. Divide that difference by the peak to get the percentage. For a peak of R10 000 and a low of R8 860, the fall is R1 140, or 11.4%.
- 04
Check the risk used on each trade
Beside each line, write the rand amount that was at risk when the trade was opened. If the amounts rise after losses, the streak was made deeper by sizing rather than by the market.
- 05
Mark where the stop was planned
For each loss, note whether the exit was the stop you set before entering. A planned stop means the trade behaved as designed. A moved stop or a missing stop is a process problem, and it belongs in a separate list.
- 06
Compare the result with the estimate
Compare your recorded fall with the estimate for the same number of losses at your fixed risk. If the real fall is larger, the gap is explained by sizing changes, spreads, commission or swaps. The broker may round position sizes and quote USD/ZAR around 18.4100 with its own spread, so small differences are expected.
The mistake most people make here
The common mistake is to double the position size after a loss to win the money back quickly. That turns a normal streak into a deep drawdown. Instead, keep risk per trade fixed and small, and check whether the loss came from a planned stop or from a rule you broke. If the stop was planned, the trade did what it was meant to do.Check yourself
If an account falls from R10 000 to R8 860, what is the drawdown in rand and as a percentage?
The fall is R10 000 minus R8 860 = R1 140. As a percentage, R1 140 divided by R10 000 = 0.114, or 11.4%.
If risk per trade is 2% and the balance is R9 800, what is the rand risk on the next trade?
2% of R9 800 is R196. That is the amount the stop should risk if the trade goes against you.
Questions that come up next
If four losses in a row are normal, how many in a row is too many?
There is no fixed number that means something has broken. If your method wins about half the time over many trades, runs of six or seven losses sit inside that record. What tells you something changed is your own behaviour, not the count. A streak built from planned stops is the method working. A streak built from missing stops or moved stops is a process problem.
My balance is R9 800 but I was once at R11 500. Which number matters?
The distance from the peak is the one that describes your risk. That fall is R1 700, which is 14.8% of R11 500. You need a gain of R1 700 on a base of R9 800 to get back, and that is 17.3%. The recovery percentage is always larger than the fall percentage, and it grows as the drawdown deepens.
Does a losing streak mean the market is against me?
The market does not know how many trades you have taken and does not adjust to punish you. A streak has no memory. If your method wins roughly half the time across many trades, losses will cluster together inside that record. The cluster is part of the same result, not a departure from it.
Should I trade a different instrument after several losses?
Changing instrument does not change the arithmetic of the streak. Your loss size is set by position size and stop distance, not by which pair you chose. If the losses came from planned stops, a new instrument would produce similar runs. If they came from broken rules, the same break will follow you to the next chart.
How do costs change the size of a loss on USD/ZAR?
Costs vary between brokers, so no single figure applies to all of them. Spreads, commissions and swap charges are added to the loss the stop defines. USD/ZAR is quoted around 18.4100, and each broker quotes its own spread around that level. Brokers may also round position sizes, which can make the actual loss slightly larger than the planned one.
If I keep risk per trade fixed at 2%, how much is that on R9 800?
Two per cent of R9 800 is R196. That is the amount the stop should risk if the trade goes against you. Keeping that figure fixed means each loss takes a similar slice from the account. A run of six such losses costs less than six losses at a size that grows after each one.
The words used on this page
- drawdown
- How far an account has fallen from its highest point. If it peaked at R10 000 and now sits at R8 860, the drawdown is R1 140, or 11.4%. It measures the distance from the peak, not the distance from where you started.
- losing streak
- A sequence of trades that all closed at a loss. It has no memory, and the market does not adjust because of it. Runs of several losses appear inside a method that wins about half the time over many trades.
- planned stop
- A stop placed before the trade opens, at a level you chose in advance. When it is hit, the trade did what it was meant to do. It is different from a stop you moved during the trade to avoid taking the loss.
- risk per trade
- The amount an account can lose on one trade if the stop is hit. At 2% on a balance of R9 800, that amount is R196. Keeping it fixed and small is what lets an account survive a run of losses.
- recovery gain
- The percentage rise needed to climb back to the peak after a fall. From R9 800 back to R11 500 needs a gain of 17.3%, while the fall was 14.8%. The recovery figure is always the larger of the two.
- spread
- The gap between the buying price and the selling price quoted by a broker. It varies between brokers, and USD/ZAR is quoted around 18.4100 with each broker setting its own spread. It adds to the cost of every trade.
What to take away
- A drawdown measures the fall from the peak, and the recovery percentage is always larger than the fall percentage.
- Losing streaks are part of a method that wins about half the time, not proof that something has broken.
- Fixed and small risk per trade keeps every loss a similar size, so a streak stays survivable.
- Doubling position size after a loss turns a normal streak into a deep drawdown.