Why recovery is asymmetrical
Losses and gains are not measured on the same base, and that is where the whole danger lives. As the account falls, every later gain is computed on a smaller base, so a larger percentage is needed merely to return.
On a $1,000 account after ten consecutive losses — an ordinary event in any system:
- At 1% risk, $904 remains and recovery needs 10.6%.
- At 5%, $599 remains and recovery needs 67%.
- At 10%, $349 remains and recovery needs 187%.
Note that the gap between the first and third is not tenfold but far wider, because the effect compounds rather than adds. Details in drawdown and risk of ruin.
The streak is expected, not exceptional
What most often pushes traders to change systems at the worst moment is believing a losing streak proves the system broke. Usually it is an ordinary statistical event.
At a 40% win rate, consecutive-loss probabilities:
- Three losses: 21.6% — frequent.
- Five: 7.8% — roughly once in thirteen sequences.
- Seven: 2.8% — near-certain across hundreds of trades.
So the practical question is not "will it come?" but "what does it leave when it does?" — which is what the tool computes. Knowing the number in advance keeps you on plan; not knowing it changes the plan under pressure. See recency bias.
Size is an output, not an input
The most common error is fixing lot size and letting risk float with stop distance. A wide-stop trade then risks a multiple of a tight-stop one while the trader believes they are being consistent.
The correct order is three steps: fix the percentage, place the stop from market structure, derive size from both. On a $1,000 account risking 1% with a $10 stop on gold, size is 0.01 lots — computed rather than chosen. See risk per trade and liquidation distance to check what that size does.