65-Day Academy · Day 31 · Risk & Position Sizing
Losing Streaks — the Variance You Must Pre-Fund
The streak math
With a 50% win rate, a 5-loss streak happens about once every 32 trades; 8 losses once in ~256. Even a 60% winner sees 5-loss streaks every ~90 trades. Streaks are not evidence the system broke — they are the texture of randomness. The account must be sized so the WORST NORMAL streak is a shrug.
The two death modes
Financial death: risk too large, streak wipes you (day 29). Psychological death: risk is fine but the streak breaks your faith and you quit at the bottom — or revenge-trade to "win it back" (day 34). Pre-funding both: 1% risk + a journal that shows the streak is statistically normal.
What you'll practise
True or false: five losses in a row with a 50%-win-rate strategy is strong evidence the strategy stopped working.
10 XP in the app · introductory
Sources
- Trade Your Way to Financial FreedomVan K. Tharp
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All lessons are for educational purposes only and are not individualized financial advice, a recommendation, or a solicitation to buy or sell any security. Options involve substantial risk and are not suitable for every investor.