Risk of ruin with 5% max draw down | Forex Factory

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Risk of ruin with 5% max draw down

  • #1
  • First Post: Apr 4, 2025 8:59am Apr 4, 2025 8:59am
This is my 1st year trading SMC supply demand with liquidity and premium discount... with that in mind, Id like to know if this statistic should concern me or this is just numerical probability IS 10 LOSING TRADES IN A ROW REALLY A REALISTIC CONCERN when trading a sound concept using good risk reward and .5% risk? I understand Forex is an efficient market. Ive set my risk lv. to 5% and my win rate to a respectable 40%. with 5% max draw down. I don't know what else I would need to do to mitigate my risk of ruin. After my 1st payout FX will be my only source of income. Not much room for error I will be trading 2x 400,000 accounts. Seeking 1-3% returns a month / quarter.

Probability of 10 Consecutive Losses
Since your win rate is 40%, the probability of losing one trade is 60% (0.6).
The probability of 10 losses in a row:
0.610=0.00605≈0.6%0.6^{10} = 0.00605 \approx 0.6\%0.610=0.00605≈0.6%
So in any 10-trade sequence, there is a 0.6% chance of failing the challenge due to consecutive losses.


Probability of Failing Over 100 Trades
To see the probability of hitting a 10-loss streak over 100 trades, we use the streak occurrence formula:
1−(1−0.00605)(100−10)1 - (1 - 0.00605)^{(100 - 10)}1−(1−0.00605)(100−10) 1−(0.99395)90≈43%1 - (0.99395)^{90} \approx 43\%1−(0.99395)90≈43%
This means that over 100 trades, there is about a 43% chance of hitting 10 consecutive losses at some point and failing the challenge.
  • #2
  • Apr 4, 2025 9:16am Apr 4, 2025 9:16am
Smc does not work anymore,try inducement instead,Market movers feed on your SL,which is liquidity for them,knowing where inducements are helps you to see markets with the same glass as them
  • #3
  • Apr 4, 2025 9:34am Apr 4, 2025 9:34am
Contrary to what many traders optimistically imagine, “streak occurrence” and “consecutive losses” are not the real issue. Not at all.

The real issue is the collective effect of much longer losing patches where you lose a few trades, win one, lose a few more, win one, lose a few more, win one and so on.

Your losing run was never long at all, but surprisingly quickly you’re 10 or 20 trades down.

This scenario is overwhelmingly more common, and is the realistic issue.
Victoria Chenevix (philosophy student, mathematical logician, MES trader)
  • #4
  • Apr 4, 2025 11:01am Apr 4, 2025 11:01am
Quoting Victoria.C
Contrary to what many traders optimistically imagine, “streak occurrence” and “consecutive losses” are not the real issue. Not at all. The real issue is the collective effect of much longer losing patches where you lose a few trades, win one, lose a few more, win one, lose a few more, win one and so on. Your losing run was never long at all, but surprisingly quickly you’re 10 or 20 trades down. This scenario is overwhelmingly more common, and is the realistic issue.

Ive considered this also... The community makes it seem like money management is the only issue with retail trading FX. I don't have those issues my draw down is fixed and I'm not strategy hoping. But if I'm setting myself up for failure I haven't really encountered someone failing with 40% win rate and 1:3 risk reward. I see lots of successes.

trading SMC supply demand with liquidity and premium discount.

Liquidity is a big part of my strategy!!
  • #5
  • Apr 4, 2025 11:47am Apr 4, 2025 11:47am
Quoting bill1985
I haven't really encountered someone failing with 40% win rate and 1:3 risk reward.

No, indeed: you'd need really, really bad, reckless risk-management, position-sizing and so on, to fail with an R of 3.0 and a 40% win-rate.

(Though some people really do have reckless risk-management, I guess?).

I'll be honest, and admit that I've never seen or heard of a retail trader having a long-term R of 3.0, and it's not something I'd ever want to try myself, but I wish you nothing but success, if you can really manage that. Liquidity has never been an issue for me at all, but I deal only in small amounts.
Victoria Chenevix (philosophy student, mathematical logician, MES trader)
  • #6
  • Apr 4, 2025 1:38pm Apr 4, 2025 1:38pm
Many want do the second step before thinking about to sett the first feet on the way.
Keep in mind that the first target is to understand what markets doing over and over again. If you have a good understanding of that, several, most systems can be dropped, because they will never lead to profit in longterm.

At the point you have a clue what are yoiu doing, make a clear trading plan with a suitable money management. This can take some time.
Trading is business and need focus to doing it.
Perfection is the enemy of good enough!
  • #7
  • Apr 10, 2025 11:59pm Apr 10, 2025 11:59pm
Thank you so much for the suggestions.
  • #8
  • Apr 11, 2025 11:49pm Apr 11, 2025 11:49pm
Quoting bill1985
This is my 1st year trading SMC supply demand with liquidity and premium discount... with that in mind, Id like to know if this statistic should concern me or this is just numerical probability IS 10 LOSING TRADES IN A ROW REALLY A REALISTIC CONCERN when trading a sound concept using good risk reward and .5% risk? I understand Forex is an efficient market. Ive set my risk lv. to 5% and my win rate to a respectable 40%. with 5% max draw down. I don't know what else I would need to do to mitigate my risk of ruin. After my 1st payout FX will be my...
Yes, a 10-loss streak is statistically possible—even with a solid 40% win rate. The 0.6% chance per sequence may seem low, but over 100 trades, a 43% chance of encountering that streak is real. It’s not about your edge being broken—it’s just variance. With 0.5% risk per trade, your 5% drawdown limit could be hit in such a streak. To mitigate risk of ruin, consider lowering risk per trade or adding a circuit breaker after a set number of losses. Also, trading for consistent 1–3% returns monthly on prop capital is realistic, but requires iron discipline, emotional control, and resilience through drawdowns. Make sure your psychology is as dialed in as your strategy.
  • #9
  • Apr 12, 2025 1:48am Apr 12, 2025 1:48am
Every trade you enter, there is a 60% chance you can lose.
On trade two, the chance of losing is still 60%
On trade three, the chance of losing is still 60%.

One of traders who I can't recall right now from the podcast series called "chat with traders" has done the maths and there is around a 42% chance you can lose 7 in a row.
The odds are far higher than you think of losing a whole series of trades in a row.
After trading markets for over 30 years, I can tell you I personally tend to win 5-7 trades in a row and then lose 3-4 trades in a row every week.
The real trading secret is ensuring your winning trades average more per dollar than your losing trades do - ie. cut your loses quick
Trading thin liquidity at the boundary of the charts
  • #10
  • Apr 14, 2025 2:01pm Apr 14, 2025 2:01pm
Quoting RickM
Every trade you enter, there is a 60% chance you can lose. On trade two, the chance of losing is still 60% On trade three, the chance of losing is still 60%. One of traders who I can't recall right now from the podcast series called "chat with traders" has done the maths and there is around a 42% chance you can lose 7 in a row. The odds are far higher than you think of losing a whole series of trades in a row. After trading markets for over 30 years, I can tell you I personally tend to win 5-7 trades in a row and then lose 3-4 trades in a row every...

UKspreadbetting? David Paul? That was my original plan to follow him. He's very successful he sold me on the 222 pattern I still want to follow his advice on just trading that pattern.
  • #11
  • Apr 15, 2025 3:39am Apr 15, 2025 3:39am
Quoting bill1985
This means that over 100 trades, there is about a 43% chance of hitting 10 consecutive losses at some point and failing the challenge.
The math overlooks compounding because after each 5% loss, your account balance shrinks, so you need more than 5% to recover (+fees, +slippage, +swaps and so on).
Observer effect
  • #12
  • Last Post: Sep 17, 2025 11:53am Sep 17, 2025 11:53am
Quoting Victoria.C
I've never seen or heard of a retail trader having a long-term R of 3.0, and it's not something I'd ever want to try myself
Same here.

I don't actually believe any retail CFD trader could be consistently profitable with a reward-to-risk of 3:1, but I've seen loads of people advising others (mostly in forums) to trade that way.

I guess the moral to the story, if there is one, is to be careful whose advice you decide to trust?
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