It depends on four inputs: win rate, reward-to-risk, risk per trade and the number of trades. Only the third is fully under your control, and it is the one with the largest effect - moving risk from 1% to 3% can turn a safe system into a dangerous one without changing the strategy at all.
Losing streaks are longer than intuition suggests. With a 45% win rate, eight consecutive losses arrive roughly once every four hundred trades - about one active year.
The mistake it causes: sizing for the average outcome rather than for the worst plausible streak.
What drives it
Four inputs: win rate, reward-to-risk, risk per trade, and number of trades. Only the third is fully under your control, and it has the largest effect by far.
| Risk per trade | Typical worst drawdown | Outcome over 200 trades |
|---|
| 0.5% | about −8% | Ruin effectively zero |
| 1% | about −15% | The standard compromise |
| 2% | about −28% | Survivable, but rules get broken here |
| 3% | about −40% | Ruin becomes a real probability |
| 5% | about −60% | The edge stops mattering |
Figures assume a 45% win rate at 1:2 and ruin defined as losing half the account. The shape matters more than the exact numbers: danger rises much faster than risk per trade does.
Why doubling risk more than doubles danger
Because losing streaks compound. The same run of losses now cuts twice as deep, and every recovery starts from a smaller base, which is the drawdown asymmetry working against you. Two percent is not twice as risky as one percent; it is considerably worse than twice.
A positive edge does not mean survival
Two traders with identical win rates and identical reward-to-risk can end the year one up and one out of the game. The difference is almost never skill. It is how much they risked when the inevitable streak arrived, and whether there was enough account left to still be trading when the edge came back.
What to do with this
- Target a risk of ruin under 1% over your expected trade count. Above 5% is a plan with a trapdoor.
- Run the simulation with a win rate five points below what you believe, and size for that result.
- If the number is high, halve the risk per trade. That lever works immediately and depends on nobody.
