Drawdown math and risk of ruin: why small risk per trade survives losing streaks
Drawdowns happen in streaks, and the arithmetic is less forgiving than it looks. Recovery gains, what ten straight losses do at each risk level, how often long losing streaks show up, risk of ruin in plain terms, and a drawdown ladder to write down before you need it.
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In this video
- 0:00 Intro
- 0:29 Recovery math
- 0:53 Ten losses in a row
- 1:14 How often
- 1:41 Risk of ruin
- 2:03 Count to the limit
- 2:20 Drawdown ladder
- 2:46 Free calculator
Key points
- Recovering from a drawdown d needs a gain of d / (1 - d): 25% after a 20% loss, 100% after a 50% loss.
- Ten straight 1R losses cost 4.89% of the account at 0.5% risk, 9.56% at 1%, 18.29% at 2% and 40.13% at 5%.
- With a 40% win rate, a run of 8+ losses somewhere in 250 independent trades has about an 82% probability.
- Fixed-fractional sizing shrinks each bet as the account falls; size never decides whether an edge exists, only how fast you lose without one.
- Write a drawdown ladder now, for example halve risk at -10% from peak and stop live trading at -20%.
Examples use round, illustrative numbers and are not actual trades or results. Education only — not investment, tax or legal advice. Narration uses two AI-generated voices.
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