Drawdown and losing streaks
What you learn in 3 minutesThis lesson shows how a losing run pulls an account down from its highest point, and what that costs in naira. You will work through six losses in a row at 2% risk per trade, and see why that is normal rather than a sign that your method is broken. The aim is to help you plan for drawdown before it happens, so a bad week does not turn into a closed account.
Six losses in a row at 2% risk
| Step | Amount | Note |
|---|---|---|
| Starting account balance | ₦1,000,000 | A round figure chosen for easy arithmetic. |
| Risk on each trade | 2% of the balance | 2% of ₦1,000,000 is ₦20,000. |
| Loss 1 | ₦980,000 | ₦1,000,000 minus ₦20,000. |
| Loss 2 | ₦960,400 | 2% of ₦980,000 is ₦19,600, so ₦980,000 minus ₦19,600. |
| Loss 3 | ₦941,192 | 2% of ₦960,400 is ₦19,208, so ₦960,400 minus ₦19,208. |
| Loss 4 | ₦922,368 | 2% of ₦941,192 is ₦18,824 (rounded), so ₦941,192 minus ₦18,824. |
| Loss 5 | ₦903,921 | 2% of ₦922,368 is ₦18,447 (rounded), so ₦922,368 minus ₦18,447. |
| Loss 6 | ₦885,842 | 2% of ₦903,921 is ₦18,078 (rounded), so ₦903,921 minus ₦18,078. |
| Drawdown from the starting balance | 11.4% | ₦1,000,000 minus ₦885,842 is ₦114,158, which is 11.4% of ₦1,000,000. |
Your broker may round position sizes, charge spreads and commissions, or apply a different conversion rate for EUR/USD, so the exact naira loss on each trade will vary. The figures here are schematic and ignore those costs.
The mistake people make here
The common mistake is to treat six losses in a row as proof that the method has stopped working, and then to double the risk on the next trade to win the money back quickly. That turns a normal 11.4% drawdown into something much larger, because the next loss is taken on a bigger position. A run of losses is a normal part of trading with a real edge, not a signal to change size. The safer response is to keep the risk per trade unchanged, check that the plan was followed, and let the maths work over many trades.Check yourself
If you risk 2% of a ₦500,000 account and lose four trades in a row, what is the balance after the fourth loss, to the nearest naira?
Loss 1: ₦500,000 minus ₦10,000 = ₦490,000. Loss 2: 2% of ₦490,000 is ₦9,800, so ₦480,200. Loss 3: 2% of ₦480,200 is ₦9,604, so ₦470,596. Loss 4: 2% of ₦470,596 is ₦9,412 (rounded), so ₦461,184.
Using the same ₦500,000 account, what is the drawdown after those four losses, as a percentage of the starting balance?
₦500,000 minus ₦461,184 is ₦38,816. As a percentage of ₦500,000, that is 7.76% (rounded to two decimal places).