Losses do not scale the way people assume. Understanding that changes how much you are willing to put on a single idea. This free lesson covers: Losses and gains are not symmetrical, The recovery problem, A fixed fraction, decided once, Name it, Decided before you enter, always, When is size decided?, What risk management does — and does not — do, Which is the honest claim?, Consecutive losses are normal, After a losing run, Put it together.
Going deeper
The mathematics of drawdown recovery is the reason professional risk limits look so conservative to newcomers. A 1% risk per trade tolerates a long losing run; a 10% risk does not survive one.
Risk of ruin — the probability of losing an account entirely — rises sharply with position size even when the underlying method is unchanged. Two traders with an identical edge and different sizing can have completely different outcomes.
Commonly cited figures are 1% or less, and lower while learning. What matters more than the exact number is that it stays constant.
No. It keeps losses survivable so a genuine edge has time to show up — and so you find out cheaply if you do not have one.
Runs of five or six happen to methods that work. This is why the fixed fraction exists: at 1%, six losses is a routine drawdown rather than a crisis.
Survive First · Learn · Step 1 of 11
Lose 10% of an account and you need about 11% to get back to even. Lose 50% and you need 100%. Lose 80% and you need 400%.
The maths gets steeper the further down you go, which is why the goal of risk management is not to avoid losing — it is to keep every loss inside the range you can climb back from.