The Workshop · lesson 5
Ten losses in a row, inside a strategy that works — on schedule.
Here is the part nobody puts in the brochure. A strategy that wins 41% of the time and pays about twice as much when it wins as it loses when it loses — the desk's strength-run shape, roughly — is a good business. It also loses ten trades in a row, regularly, on schedule, and feels broken while it does. Run it.
The red bands are losing streaks of six or more. Count them. With a 59% chance of losing any one trade, ten straight losses has about a one-in-two-hundred chance of starting on any given trade — which, over a thousand trades, makes it not a possibility but an appointment. Five or six losses in a row will happen a few dozen times. None of it means anything.
Fact. The probability of a losing streak of length k starting at any trade is (1 − hit rate)k. At a 41% hit rate: five in a row 7%, eight in a row 1.5%, ten in a row 0.5%, fifteen in a row 0.04%. Over a thousand trades you should expect to see the ten and to be surprised by nothing shorter than fifteen. A streak that is rarer than that is the first moment there is anything to investigate.
Almost every strategy that is abandoned is abandoned inside a normal streak. The trader does not stop because the edge went away; the trader stops because ten losses felt like proof, sized up to "make it back", or started overriding the rules to avoid the eleventh. The strategy was fine. The holder was not sized for its shape.
So the useful question is not "how much does it make" but "what is its worst normal stretch, and can I sit through it at the size I am running?" Set the size so that the deepest fall in the chart above — in units risked per trade — is a number you can hold as a percentage of your account. If a bad stretch is twenty units and you risk 2% per trade, you are agreeing to a 40% drawdown that is normal. At 1% it is a bad quarter.
The house book is shown with its worst drawdown and its hit rate beside its return, and the trade line shows the shape's hit rate beside its average, because a 41% shape has to be judged by its payoff, never by its last five trades. The tracker's closed view keeps your own hit rate and your own worst stretch. Look there before deciding the engine has stopped working; then look at the engine page, where the year the rules lost is printed on purpose.
Keep this: a losing streak is a property of the strategy, not a verdict on it. Know its normal worst stretch, size for it, and sit through it.
The Workshop is education, not advice. Replayed numbers are averages over many trades, after average trading costs (2 bps a side on a stock, 1 on a fund, included for fairness; yours vary by broker and liquidity) unless stated, and are not forecasts; the live record is on the engine page. Open the deskManualThe EngineChangelog