Streak Calculator: The importance of knowing your odds

My risk is between 1 and 2 %. So it would take between 50 and 100 loosing trades to eat up my account. I currently have a 50.63 % chance of loosing whenever i place a trade. I will make around 200 trades a year.

If i now use the streak calculator to look upon the next 100 years (20000 trades) it says i have a 1.201 % chance of encountering a 20 trades loosing streak. That would be very bad luck but my account would survive. I have a 99.998 % chance of encountering a 10 trade loosing streak so i would say this is the expected maximum.

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so you don’t know how many losing trades you can achieve BEFORE start trading this strategy

people need also to be aware that in practice, consecutive losing runs are not usually the problem

the problem is usually long losing periods with a regularly repeating pattern of “several losers interspersed by only one winner,” and the risk factors for this happening are usually something between 5 and 10 times as high as the equivalent risk for consecutive losers

a sequence of results like LLLLLWLLLLLWLLLWLLLLLLWLLLLLWLLLLLLWLLLLLWLLLLL contains no more than 6 consecutive losers anywhere, but it can still devastate most people’s accounts, and it’s far, far more common than is suggested by looking at tables of “consecutive loser risk”

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Well i forward tested my strategy and had the data to calculate the odds like i did now but i didn’t. I knew that a 10 trade loosing streak would be bad luck. But i didn’t know that my odds to encounter one would be around 10% in a year.

did you change anything to get a new profitable transaction?

No! This would be very foolish. I just took one loss after another believing in my strategy.

But i already admitted, that it got extremely hard in the end and the streak calculator just helped me stay true to my rules.

ok, it is very good do you have only one strategy ?

Yes just this one.

It is not good, check this topic The risk of trading one profitable strategy

Thanks, but i have a different opinion on that matter. I dont use EA’s. I am a discretionary, manual trader. So i have only limited time to trade. I cant trade multiple strategies at once. This one strategy is already eating up around 2 hours a day.

Exactly. Remember, there is not only one way to success. And if i would use EA’s i surely would do it like you.

you don’t have to use EA’s to trade via portfolio

It’s great that you have faith in your strategy, and important to know it inside and out. Do you know why it loses that other 40-50% of the time?

I use a strategy on the 4H TF’s that works well in trending conditions. However, when prices are range bound, it does poorly, so I have to make adjustments such as widening my SL’s or moving to a different TF.

Therefore I have 3 different strategies depending on market conditions.

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It loses that other 50% of the time because my pattern doesnt always work. After a momentum move, short pullback and a break of the high/low i need price to continue 2 times the length of the pullback and not to reverse. If price does that in more than 33% of the time am profitable.

The same for me. My strategy, which I developed and refined carefully following a definite trading idea which I learned from my mentor, works differently according to how I manage the position I open (R/R, trailing stop profit/no trailng stop profit and so on). In this period, for example, I work quite well if I set a 1/1 R/R but when the market is more trending I can work well with a higher R/R ratio. So, I could say that actually I have many strategies according to the actual management of a single trading principle. My 2 cents of course, I’m a newbie and I like to listen to more experienced fellow traders.

may I ask you what data do you check and analyze? as you mentioned you checked plenty of data.

Well. I journal date, day, instrument, points stop loss, monetary risk, screenshot of final trade, profit/loss, relative profit/loss measured in R, if the trade was a win a loss or a breakevenish trade. I also - and maybe this is something i do different - journal other trade management methods.

With this data i calculate various of other metrics and analyze my trading: For example i know that i could have a winning % higher than 50 % with a 1:1 RRR, but i know too that most of my trades running 1:1 also run 1:1,5 and nearly every trade that runs 1:1,5 also runs 1:2. In addition to that if a trade runs 1:1 and then turns around to breakeven, the chance is very high, that it is just a pullback and it continues in trend direction and hitting TP. This is why 1:2 “all or nothing” is my management. There are times when a trade runs like 1:1,8 R and then stops me out. It is very hard when this happens, but i just act based on my numbers.

are they numbers you’ve actually proved over a thorough, accurate backtest of a statistically significant sample-size? or “confident impression numbers”?

you may be right, of course

i think everyone i have ever known who has believed more or less the same as you and who has actually been persuaded, in spite of their high degree of confidence, to run an appropriate, statistically significant backtest, has been absolutely astonished by the results, reduced their reward-to-risk ratio, going forward, and increased their PF by doing so

it’s really very, very counterintuitive, i know

but one is perhaps entitled to winder why institutional traders almost universally use a far lower R than retail traders?

you know me well enough to know that i intend this observation helpfully, not argumentatively or as a criticism!

No they are live trading numbers. But in the beginning, before i had the data, i only had those “confident impression numbers” .

I don’t know. Maybe it is because i only trade the open of indices? I specialized so much…

Maybe you are right and the tide will turn. But i still believe in my 1:2 RRR 1:1 would be 9 R in profit this year and with 1:2 i am 28 R in profit. The difference is so huge that i have no choice but to continue.