How many consecutive losing trades would make you pause trading? - page 3

The poll asks the right question but measures the wrong thing. Consecutive losses are not evidence that anything changed - they are the expected texture of any edge with a win rate below 100 percent.

Before you use a losing streak as a signal to stop, ask what a streak of that length would look like if your system were working exactly as designed. With a 40 percent win rate the probability of a run of 5 or more losses inside 100 trades is high enough that stopping on it is not risk management, it is just abandoning the sample.

The number worth setting is not a loss count but a drawdown in currency that you decided in advance, while calm, was the point at which you would admit the premise was wrong. A streak is noise. Drawdown past your tested maximum is information.

Ahmed Ismail Muhammad Ismail Al Talhat #:

The poll asks the right question but measures the wrong thing. Consecutive losses are not evidence that anything changed - they are the expected texture of any edge with a win rate below 100 percent.

Before you use a losing streak as a signal to stop, ask what a streak of that length would look like if your system were working exactly as designed. With a 40 percent win rate the probability of a run of 5 or more losses inside 100 trades is high enough that stopping on it is not risk management, it is just abandoning the sample.

The number worth setting is not a loss count but a drawdown in currency that you decided in advance, while calm, was the point at which you would admit the premise was wrong. A streak is noise. Drawdown past your tested maximum is information.

Hi Ahmed,

i agree, a streak alone tells you very little. With a 40% win rate a run of 5 is just normal.
One thing I learned with the backtest max drawdown though. It is only one path through the data, so live can go a bit deeper without anything being broken. Thats why I have the earlier line where I only look closer at the trades, and the pause comes past the tested max, not exactly at it.

@Ryan L Johnson thanks, and yes, I think that was Minh's point too.

Best regards
Chris