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Loss rate

The proportion of trades that lose, which governs how long your losing streaks will be and therefore how much drawdown to expect.

Loss rate is simply one minus win-rate, but framing it this way changes the planning. A 40% win rate system loses 60% of the time, which means a 6% chance of five straight losses at any given point and near-certainty of seeing several such runs in a few hundred trades.

The arithmetic is worth doing before you need it: the probability of n consecutive losses is loss rate to the power n. At a 60% loss rate, seven in a row is 0.6^7 = 2.8% per starting position, and across 200 trades you should expect that run to occur. See streak-probability and consecutive-losses.

Knowing the number in advance is what turns a losing streak from evidence of a broken system into a scheduled event. Most abandoned strategies were abandoned inside a statistically ordinary run.

Related: win-rate, streak-probability, consecutive-losses, risk-of-drawdown

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