Assumptions
- Initial equity: $10,000
- Each loss equals the planned risk for that trade
- Risk is recalculated from current equity
- No costs, slippage, gaps, or rule breaches before trade 20
Results
The formula is remaining equity = initial equity × (1 − risk fraction)^20.
What the example shows
All three paths contain the same trade outcomes. The difference comes entirely from position size. Lower risk does not prevent the streak, but it preserves more capital and makes continued execution more realistic. The recovery column is nonlinear. A 50% drawdown requires a 100% gain on the remaining capital. This asymmetry is one reason a strategy should be sized for adverse sequences rather than for the average trade.How plausible is a 20-loss streak?
The answer depends on loss probability, number of trades, and dependence between outcomes. For a system with a 50% independent loss probability, one specified sequence of 20 losses has probability (0.5^), but the chance of seeing at least one such run across a long trading history is higher because many overlapping sequences are possible. Live outcomes may also be clustered by market regime, common signals, or execution problems. Independence should not be assumed without evidence.Prop-account implication
A funded-account rule can be breached well before trade 20. If the maximum loss allowance is 10% of nominal balance, even the 1% path may be incompatible with the account unless “1%” is defined against the smaller usable buffer.How losing streaks behave
Understand run probability and sequence risk.
5% risk case
Compare the same compounding mechanism over 15 losses.
Monte Carlo simulation
Estimate a distribution of drawdowns and streaks.
Daily and maximum loss
Map sequence risk to prop-firm constraints.