Drawdowns and overtrading
Why losing streaks happen, how to size down through them, and how to spot overtrading.
Every strategy has losing streaks. The question is not whether you will have one but whether your account and your discipline survive it.
The maths of drawdowns
Losses need larger gains to recover:
| Drawdown | Gain needed to recover |
|---|---|
| 5% | 5.3% |
| 10% | 11.1% |
| 20% | 25% |
| 50% | 100% |
Small drawdowns are easy to recover from. Large ones are not. That is why the evaluation limits stop losses at 10%.
Sizing down
A simple, effective rule: after the account falls 3% from its peak, halve your risk per trade until it recovers half of the drawdown. You recover more slowly, but a bad streak cannot accelerate into a breach.
Overtrading
Overtrading means taking trades that are not in your plan: out of boredom, to make the day "worth it", or to win back losses. Warning signs:
- More trades than your strategy normally produces.
- Trades outside your usual session or on unfamiliar instruments.
- Shorter time between a loss and the next trade.
- Journal notes that say "felt like it" instead of naming a setup.
Your daily summary in account metrics shows trades per day. If one day has three times the usual number, read that day's journal entries carefully.
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