Drawdown and losing streaks
Why a fall from the peak is measured, not the balance alone
A balance tells you what is in the account now. It does not tell you how far the account has fallen from its highest point. That distance is the drawdown, and it is the figure that decides whether an account survives a bad month. Two accounts can hold the same ₦400,000 while one is at its peak and the other is down from ₦500,000. The second account is the fragile one, even though the balances match.
Peak means the highest balance the account has reached, not the highest balance this week. If an account grows from ₦500,000 to ₦560,000 and then falls to ₦500,000, the drawdown is ₦60,000, which is 10.71% of ₦560,000. The account has given back all of its gain and none of its starting money, yet the drawdown is real. Measuring from the peak is stricter than measuring from the deposit, and it is the honest way to see the fall.
The percentage matters more than the naira amount because the account has to climb back from the lower base. A fall of 10.71% needs a gain of 12% on the remaining ₦500,000 to return to ₦560,000. The gap widens as the fall deepens. A 50% fall needs a 100% gain to recover. This is the reason a drawdown is watched closely even when the naira figure looks small beside the original deposit.
What a run of losses does to the size of each loss
When risk is a fixed percentage of the account, the naira amount risked shrinks as the account falls. On a ₦500,000 account at 2%, the first loss is ₦10,000. After that loss the balance is ₦490,000, so the next 2% is ₦9,800. Each loss is slightly smaller than the one before it. The fall slows down on its own, without any decision from the person trading.
This is why a run of six losses at 2% does not cost 12% of the starting balance. It costs less, because every loss is taken on a smaller base. The effect is small over six trades and large over sixty. It is the main reason fixed-percentage risk is safer than fixed-naira risk, where the same ₦10,000 is risked no matter how far the account has fallen. With fixed naira, the percentage risked rises as the account shrinks, and the fall speeds up.
A losing run is not evidence that a method has stopped working. Losing runs happen to methods that make money over many trades. If a method wins six trades out of ten, a run of six losses is uncommon but possible, and it says nothing about the next trade. The next trade has the same odds as every trade before it. The account survives because the risk per trade stayed small while the run passed.
What the costs of trading add to the fall
The figures in this course ignore spreads and commissions, so the real fall is always a little deeper than the arithmetic suggests. On EUR/USD around 1.0850, the spread is the gap between the buying price and the selling price, and it is charged on every trade. A trade that ends flat still loses the spread. A run of six losses carries six spreads on top of the six planned losses.
Position sizes are often rounded by the broker, and that rounding can work for or against the account. The naira loss also depends on the conversion rate the broker applies to a dollar-based instrument such as EUR/USD. That rate varies between brokers and changes during the day. For these reasons the exact naira cost of a losing run cannot be known in advance. It can only be estimated, and the estimate should be treated as a floor rather than a ceiling.
The practical response is to plan for a fall that is larger than the arithmetic. If six losses at 2% work out to about 11.4% before costs, plan for something above that once spreads and commissions are counted. The size of the extra depends on the broker, so it varies. What does not vary is the direction: costs make the drawdown deeper, never shallower.
Six losses in a row at 2% risk
| Step | Amount | Note |
|---|---|---|
| Starting account balance | ₦1,000,000 | A round figure chosen for easy arithmetic. |
| Risk on each trade | 2% of the balance | 2% of ₦1,000,000 is ₦20,000. |
| Loss 1 | ₦980,000 | ₦1,000,000 minus ₦20,000. |
| Loss 2 | ₦960,400 | 2% of ₦980,000 is ₦19,600, so ₦980,000 minus ₦19,600. |
| Loss 3 | ₦941,192 | 2% of ₦960,400 is ₦19,208, so ₦960,400 minus ₦19,208. |
| Loss 4 | ₦922,368 | 2% of ₦941,192 is ₦18,824 (rounded), so ₦941,192 minus ₦18,824. |
| Loss 5 | ₦903,921 | 2% of ₦922,368 is ₦18,447 (rounded), so ₦922,368 minus ₦18,447. |
| Loss 6 | ₦885,842 | 2% of ₦903,921 is ₦18,078 (rounded), so ₦903,921 minus ₦18,078. |
| Drawdown from the starting balance | 11.4% | ₦1,000,000 minus ₦885,842 is ₦114,158, which is 11.4% of ₦1,000,000. |
Your broker may round position sizes, charge spreads and commissions, or apply a different conversion rate for EUR/USD, so the exact naira loss on each trade will vary. The figures here are schematic and ignore those costs.
Doing it once, step by step
Work through the figures once, in order, using a ₦500,000 account and 2% risk per trade. Write each balance down before moving to the next line.
- 01
Set the starting balance and the risk
Write ₦500,000 as the peak balance. Take 2% of it, which is ₦10,000, and treat that as the amount risked on the first trade. This is the only figure you choose. Everything after it is arithmetic.
- 02
Take the first loss
Subtract ₦10,000 from ₦500,000 to get ₦490,000. The drawdown from the peak is ₦10,000, which is 2% of ₦500,000. The account is still close to its peak.
- 03
Recalculate the risk on the smaller balance
Take 2% of ₦490,000, which is ₦9,800. Subtract it to get ₦480,200. Notice that the loss is smaller than the first one. This is the fixed-percentage rule working.
- 04
Continue for four more losses
2% of ₦480,200 is ₦9,604, leaving ₦470,596. 2% of ₦470,596 is ₦9,412, leaving ₦461,184. 2% of ₦461,184 is ₦9,224, leaving ₦451,960. 2% of ₦451,960 is ₦9,039, leaving ₦442,921. Six losses in total.
- 05
Measure the drawdown from the peak
Subtract ₦442,921 from ₦500,000 to get ₦57,079. Divide that by ₦500,000 and multiply by 100 to get 11.42%, rounded to two decimal places. This is the drawdown after six losses at 2% risk.
- 06
Add the costs the figures leave out
Add the spreads and commissions your broker charges on six trades, and allow for any rounding of position sizes. The exact addition varies between brokers, so treat 11.42% as the figure before costs. Plan for a slightly deeper fall than the arithmetic shows.
The mistake most people make here
The common mistake is to treat six losses in a row as proof that the method has stopped working, and then to double the risk on the next trade to win the money back quickly. That turns a normal 11.4% drawdown into something much larger, because the next loss is taken on a bigger position. A run of losses is a normal part of trading with a real edge, not a signal to change size. The safer response is to keep the risk per trade unchanged, check that the plan was followed, and let the maths work over many trades.Check yourself
If you risk 2% of a ₦500,000 account and lose four trades in a row, what is the balance after the fourth loss, to the nearest naira?
Loss 1: ₦500,000 minus ₦10,000 = ₦490,000. Loss 2: 2% of ₦490,000 is ₦9,800, so ₦480,200. Loss 3: 2% of ₦480,200 is ₦9,604, so ₦470,596. Loss 4: 2% of ₦470,596 is ₦9,412 (rounded), so ₦461,184.
Using the same ₦500,000 account, what is the drawdown after those four losses, as a percentage of the starting balance?
₦500,000 minus ₦461,184 is ₦38,816. As a percentage of ₦500,000, that is 7.76% (rounded to two decimal places).
Questions that come up next
How far can an account fall before it is hard to recover?
There is no fixed line, but the arithmetic gets harder as the fall deepens. A 10% fall needs about an 11.1% gain on the smaller balance to get back to the peak. A 20% fall needs a 25% gain. A 50% fall needs a 100% gain. The deeper the drawdown, the more the account has to earn just to return to where it was.
Why does a losing run cost less than six times the first loss?
Because the risk is a percentage of the balance, not a fixed naira amount. After the first loss the balance is smaller, so the next 2% is a smaller naira figure. Each loss in the run is slightly less than the one before it. That is why six losses at 2% cost less than 12% of the starting balance.
What does it cost to place a trade on EUR/USD?
The cost varies between brokers. It usually includes the spread, which is the gap between the buying and selling price, and sometimes a commission on top. Some brokers also charge a swap or financing fee if you hold the position overnight. You cannot know the exact cost without checking your own broker's terms.
How do I pay money into a trading account from Nigeria?
The common methods are bank transfer, USSD and cards. The exact options, fees and processing times vary between brokers. Check what your chosen broker accepts and what it charges before you send money. Keep a record of every deposit for your own accounts.
Does SEC Nigeria regulate the broker I use?
The SEC Nigeria regulates certain investment activities in the country, but not every broker that accepts Nigerian clients is registered with it. You can check the SEC Nigeria website to see whether a firm appears on its list. If a broker is not registered, you have fewer protections if something goes wrong. Never assume that a broker is regulated just because it accepts naira deposits.
After six losses in a row, should I change my risk per trade?
Changing the risk per trade after a normal losing run is usually a mistake. If you double the risk to win the money back quickly, the next loss is taken on a bigger position and the drawdown grows faster. The safer response is to keep the risk unchanged and check that you followed your plan. A run of losses is a normal part of trading with an edge, not a signal to change size.
The words used on this page
- drawdown
- The fall from the highest balance the account has reached to its current balance. It is measured from the peak, not from the amount you first deposited. A drawdown can happen even when the account is still above its starting balance.
- peak
- The highest balance the account has ever reached. It is not the highest balance this week or this month. Drawdown is always measured down from the peak.
- fixed-percentage risk
- Risking the same percentage of the account on every trade, such as 2%. The naira amount risked shrinks as the account falls. This makes the fall slow down on its own.
- fixed-naira risk
- Risking the same naira amount on every trade, such as ₦10,000, no matter the account size. As the account falls, that fixed amount becomes a larger percentage of the balance. The fall speeds up.
- losing streak
- A run of losses in a row. It happens to methods that make money over many trades. A streak does not tell you what the next trade will do.
- spread
- The gap between the price at which you can buy and the price at which you can sell. It is a cost you pay on every trade. The size of the spread varies between brokers and can widen when markets are busy.
What to take away
- Drawdown is the fall from your account's highest balance, not from your original deposit.
- A losing run is normal and does not mean your method has stopped working.
- With fixed-percentage risk, each loss is smaller than the last, so the fall slows down on its own.
- Doubling risk after losses turns a normal drawdown into a much larger one.
- The exact cost of trading varies between brokers, so check spreads, commissions and payment fees before you start.