Stock Trading -(Day Trading)-8

                             Viii-Losing Streaks Probability and Money Management:

What is the probability of a losing streak? If your strategy has a win rate of 60% there is chance you will experience a streak of 12 losses in a row.

Win %	Probable streak
40 %	21
45 %	18
50 %	16
60 %	12
70 %	9
80 %	7
90 %	5

Let us say a trading system has 60% accuracy. It means out of 100 trades, 60 are winning trades, and 40 are losing trades.

Automatically, we assume the result will come in this pattern: WLWLWLWLWL. Where, W - Winning Trade and L -Losing Trade. But statistically, there is a possibility of 9 losing trades in one stretch when the accuracy is 60%. It means it looks like this: WLWLLLLLLLLLW. Let us say you have a habit of betting 10% of your capital per trade. In this case, your entire capital will be wiped out (except that 10%), and your situation will be pathetic. But if you risk only 2% of your capital per trade, then you lose only 18% of the capital and still you will be in a better frame of mind to manage trading.

Money management is most important in trading as it ensures capital preservation and long-term success. Setting risk limits per trade helps protect against substantial losses, allowing traders to stay in the game during inevitable downturns.