Strategy and performance
Maximum consecutive losses
The longest unbroken run of losing trades in a sample. Multiplied by risk per trade it gives the drawdown a strategy has historically produced, which is the figure a fixed floor has to absorb.
Also called: Losing streak
GFN’s figure
GFN's floors in streak terms: the 8% 2 Step drawdown absorbs 16 losses at 0.5% risk, 8 at 1% and 4 at 2%. The 5% Instant floor absorbs 10, 5 and 2.
- 2 StepLosses absorbed at 0.5% risk
- 16
- 1 StepLosses absorbed at 0.5% risk
- 16, or 20 with the 10% add-on
- InstantLosses absorbed at 0.5% risk
- 10
Rough counts that ignore compounding and trading costs; both make the real number smaller.
In detail
Maximum consecutive losses,explained
Streaks are longer than intuition suggests. A strategy that wins 50% of the time will produce a run of seven losses fairly regularly over a few hundred trades, and the run has to fit inside the account.
This is the calculation that should decide risk per trade on a prop account: worst expected streak multiplied by risk must be comfortably less than the drawdown allowance.
Related
Terms thatcome with it
Most rules only make sense next to the ones they interact with. These are the entries this one depends on.
Risk of ruin
The probability that a sequence of trades takes an account to its breach level before it reaches its target, given a win rate, a reward-to-risk ratio and a risk per trade. It is driven mostly by position size.
Win rate
The proportion of trades that finish profitable. On its own it says nothing useful - a 90% win rate with one outsized loss and a 35% win rate with large winners can produce the same result.
Fixed fractional
Risking a constant percentage of equity on every trade, so position size falls after losses and rises after gains. It is the standard position-sizing model and the one most prop rules assume.
Maximum drawdown
The total loss an account may take before it is failed. Expressed as a percentage of the starting balance, it sets a floor: touch it and the account breaches, whatever the account has made up to that point.
Position size
How many lots a trade is placed in. It is calculated from the dollar amount being risked and the stop distance, not chosen first - which is the reverse of how most traders approach it.
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