Why it matters
Sequence risk explains why drawdowns early can cripple an account and why leverage amplifies fragility.
Trading use: the point is not vocabulary. The point is prediction: what changes when this shows up?
Common trap
Assuming average return is enough to judge a strategy.
Example
Two strategies average +2% per month; one has clustered losses early and blows up with leverage.
Operational cue: if you can’t point to it on the chart, in the DOM, or in your broker logs, treat it as a story and trade smaller.
Notes
Design for survivability across worst plausible sequences, not just average outcomes.
Quick rule
- If you see this repeatedly, you are in a different regime than your model assumes.
- Regime change usually means position size change.
- When in doubt: trade smaller, or don’t trade.