What is the Streak Risk Escalation Rule?
The Streak Risk Escalation Rule identifies and flags trading patterns where:
A trader has a losing streak (multiple consecutive trades resulting in a negative overall profit).
The trader subsequently places a significantly larger trade (referred to as a “flip trade”) within a short timeframe, with the aim of covering the losses from the streak.
The flip trade’s risk, measured using Value at Risk (VAR), exceeds predefined thresholds.
How Does the Rule Work?
To assess risk, we use the Value at Risk (VAR) metric, calculated as:
• USD Volume: The size of the trade in USD.
• 90-Day Volatility: Calculated based on the rolling standard deviation of the mid-prices (average of bid and ask prices) for the instrument over the last 90 days.
For example:
• Gold (XAUUSD) typically has a 90-day volatility of 0.89.
• GBP/USD typically has a lower volatility of 0.36.
This means that a $100,000 trade on Gold carries more than twice the risk of the same trade on GBP/USD.
Want to calculate the VAR for every pair yourself?
Use our VAR Calculator Tool to quickly determine the Value at Risk for any trading instrument and make informed decisions.
Key Parameters for Flagging Trades
The Streak Risk Escalation Rule applies if the following conditions are met:
Losing Streak: A series of equal to or more than two trades with a combined negative profit.
Flip Trade Timing: The flip trade occurs within a specified number of hours or trades following the streak.
Flip Trade Profit: The profit from the flip trade covers the total loss of the streak.
VAR Threshold: The VAR of the flip trade is significantly higher than the average VAR of the losing streak.
Examples of Violations Under the Streak Risk Escalation Rule
We have built a comprehensive list of examples, taken directly from past violations that have been actioned, and compiled them into the attached Google Sheet. These examples illustrate how the Streak Risk Escalation Rule is applied to identify and flag violations. The list provides detailed insights into how VAR calculations and trading patterns result in flagged trades, along with thorough explanations of the deductions.
For more details, refer to our Streak Risk Escalation Rule Examples. Let us know if you have further questions!
Examples of Multiple Losing Streaks Under the Streak Risk Escalation Rule
What happens when there are multiple losing streaks within a designated time period?
The Streak Risk Escalation Rule accounts for scenarios where two or more losing streaks occur within a specified time period. In such cases, the system will attempt to combine the streaks and assess whether the flip trade meets the necessary criteria to validate or violate the combined streak.
Here’s how it works:
1. Criteria for Combining Losing Streaks:
• If multiple losing streaks occur in the designated period, the system will combine the streaks and evaluate the total loss and the mean VAR (Value at Risk) of the combined streak.
• The flip trade is then checked to ensure its profit is greater than the combined streak’s total loss and its VAR is more than double the mean VAR of the combined streak.
2. Example Scenarios:
Scenario 1:
Trades: -1, -2, -2, +1, -2, -2, Flip Trade: +6
• Streak #1: -1, -2, -2 (Total Loss: -5)
• Streak #2: -2, -2 (Total Loss: -4)
• Flip Trade Profit: +6
Analysis:
• Combined Streak: Total Loss = -5 + -4 = -9
• Flip Trade Profit (+6) is less than the combined streak total loss (-9).
• Result: The system considers Streak #1 resolved with Flip Trade +6. Streak #2 remains unresolved.
Scenario 2:
Trades: -1, -2, -2, +1, -2, -2, Flip Trade: +10
• Streak #1: -1, -2, -2 (Total Loss: -5)
• Streak #2: -2, -2 (Total Loss: -4)
• Flip Trade Profit: +10
Analysis:
• Combined Streak: Total Loss = -5 + -4 = -9
• Flip Trade Profit (+10) is greater than the combined streak total loss (-9).
• Result: The system resolves the combined streak with Flip Trade +10.
Key Notes for Both Scenarios:
• The VAR of the flip trade must always be greater than the mean VAR of the combined streak to validate a resolution.
• If the flip trade’s profit and VAR meet the criteria for only one streak (e.g., Streak #1 or Streak #2), the system will resolve that streak and disregard the other.
Summary of Outcomes:
• If the flip trade profit and VAR meet the criteria for the combined streak, it resolves both streaks together.
• If the flip trade only meets the criteria for one streak, it resolves that streak and disregards the other.
This mechanism ensures fair evaluation and prevents traders from circumventing rules by splitting trades or streaks.
For more details, refer to our Streak Risk Escalation Rule Examples. Let us know if you have further questions!
Disciplinary Actions
First and Second Violations:
Profits from flagged trades are deducted from the account.
Warnings are issued.
Third Violation:
The account is breached, and depending on the severity, it may be suspended or terminated.
Why is the Rule Important?
The Streak Risk Escalation Rule ensures fair trading practices by discouraging high-risk behaviors that disrupt the platform’s balance. This approach protects both the trader and the trading environment, reducing the likelihood of severe losses and promoting responsible trading habits.
Frequently Asked Questions
Q: Does the rule apply to manual trading?
A: Yes, the rule applies to both manual and automated trading. Any trading pattern that meets the criteria will be flagged.
Q: How can I avoid violations?
A:
Monitor your trade sizes and risk levels.
Avoid increasing trade risk significantly after a losing streak.
Use consistent and calculated risk management strategies.
Q: For Example 1 in the streak rule, it shows an example with only two losses. Shouldn’t it be at least 3 losses? And what does suspension and termination mean? Does it mean banned from trading with TFT?
A: A series of two losses starts a streak, with the flip trade being the third trade. Suspension and termination refer to actions on your account. Suspension means your account may be temporarily locked, while termination means you are banned from trading with TFT.
Q: Is the calculation based on the stop loss? For example, if I use 0.5 lots for the first two trades with a 5-pip stop loss, and then use 1 lot with a 10-pip stop loss, will that be a violation?
A: The calculation is not based on the stop loss. It is entirely based on the Volume x Volatility = Value at Risk (VAR) for the positions. If the VAR of the flip trade is double the VAR of the losing streak, it will count as a violation.
Q: If this prop firm wants to be fair, you need to specify everything to the T to ensure transparency. Streak trading seems unfair. Flip trading timing is not clear or fair. TFT states for streak risk escalation number 2: “The flip trade occurs within a specified number of hours or trades following the streak.”
A: To clarify, the flip trade must occur within 15 trades of the losing streak and within 48 hours after the losing streak ends.
Q: If I traded USDJPY and the first trade was 5 lots but closed it for repositioning with a slight loss of $30, reopened with 10 lots, closed with a loss of $700, and then repositioned again with another 10 lots, closing with a profit of $1,000, is this considered a violation since all three trades were on USDJPY?
A: In this scenario, the VAR of the winning trade does not exceed double the VAR of the streak, so this would not be a violation. Repositioning trades are accounted for individually.
Q: I have a question regarding the streak rule based on the Google sheet provided earlier. Here’s the scenario:
• Trade 1: XAUUSD - 0.3 lots, $100 loss.
• Trade 2: XAUUSD - 1 lot, $500 profit.
Will this count as a violation? As per the rule, there has to be a streak of 2 losses before a flip trade. Since there is only 1 loss, this wouldn’t be a streak violation, correct?
A: Correct. There must be a streak of at least 2 consecutive losses before a flip trade for the streak rule to apply. In this case, it would not be a violation.
Q: On Royal Pro, if I place a trade on gold and it runs 100 pips positive, can I place another trade with the same lot size?
A: Yes, you can.
Q: Today I had a loss. My operations were 0.50. Tomorrow if I start trading with 1 lot, does it count as martingale?
A: It depends on the instruments you are trading. Simply asking about opening 1 lot and 0.50 does not provide the full picture.
• Example 1: If you are trading only GBPUSD, have a streak of losing trades with 0.50 lots, and then increase your lot size to over 1 lot on the winning trade, you will be flagged for a violation.
• Example 2: If you are trading on BTCUSD during a losing streak with 0.70 lots and then switch to AUDUSD with 2 lots, you will not be flagged for a violation.
Q: If I make a loss on US30 using 1 lot, and then trade US30 and Gold using the same 1 lot size, is that okay?
A: Let’s look at examples:
• Example 1: If you trade 4 losses in a row with US30 at 1 lot, your average VAR would be $2,813.51. If you then switch to Gold, enter 1 lot, and have a winning trade, your VAR would be $2,364.10. In this case, you would not receive a violation.
• Example 2: If you trade US30 at 5 lots and lose 3 times in a row, your average VAR would be $14,067.54. Then, if you enter a 15-lot trade on Gold and win, your VAR would increase to $35,461.55, and this would result in a violation.
Q: When does a losing streak end? How many trades are included in losing streaks (minimum and maximum)?
A: A losing streak ends when a winning trade is identified within 15 trades and 48 hours.
• Example: If you lose 3 trades in a row, then win or lose any of the next 15 trades, the system will look at the winning trades in that period to count as the flip trade.
• Note: If a new losing streak begins within the next 15 trades, the system will focus on the most recent streak and disregard the prior one.
Q: What is the exact time duration after a losing streak ends, and does it impact other trades?
A: The losing streak ends within 48 hours AND 15 trades, whichever occurs first.
Q: How is volatility calculated for specific instruments?
A: Volatility is calculated using our provided calculator. This tool ensures accurate calculations of instrument-specific volatility for VAR.
Q: Does Risk Streak Escalation impact RRR (Risk-Reward Ratio)? For example, if I lose a trade today with 1% risk, lose another tomorrow with 1%, and then win a trade with 3%, is this a violation?
A: No, your RRR is not related to Value at Risk (VAR). VAR is calculated based on volume x volatility of the instrument. The risk amount, not the reward, is what the system considers.
Q: Can I open two positions at the same level but with different timings?
A: Yes, you can open two positions at the same level. However, if both positions lose, it will initiate a streak.
Q: If I have two Risk Streak Escalation violations in the challenge phase and one on a funded account, will it count as my third violation and breach my account?
A: No, violations reset at each phase. For example:
• If you have 2 violations in Phase 1, your count resets when you move to Phase 2.
Q: What happens if I do not place up to 15 trades?
A: If you do not place up to 15 trades after a losing streak, the flip trade window will still remain open for 48 hours. If no winning trade occurs within 48 hours, the losing streak ends without a flip trade being identified.
Q: What if the flip trade occurs before 48 hours?
A: If a flip trade (winning trade) occurs before the 48-hour window and within the 15 trades following the losing streak, the system will consider it as the flip trade, and the losing streak will end.
Q: When does a losing streak end?
A: A losing streak ends when either:
1. A winning trade is identified within the 15 trades following the streak.
2. 48 hours pass without any winning trade being placed.
If a new losing streak begins within the next 15 trades or 48 hours, the system will shift its focus to the new streak and disregard the initial one.