Learn · Topic
Risk management
Position size, Stop loss and keeping an account alive for the long run.
26 articles
Prop Firm Challenge Math: Pass Odds, Fees and Losing the Funded Account
100,000 simulated runs show how profit targets, daily loss limits and max drawdown set your pass odds at each risk per trade, with and without an edge.
11 min readSmall Account (100–500 USD) Position Sizing When Lots Move in 0.01 Steps
With a 0.01 minimum lot, many small accounts can't really risk 1%. Lowest possible risk by account and stop, your options, and why adding capital beats raising risk.
11 min readFat Tails: Why 5-Sigma Days Happen Far More Often Than the Bell Curve Says
Real returns are not bell-shaped. A 5σ day the normal curve puts at once in 6,900 years shows up every few years. What that does to stops, VaR and leverage.
10 min readKelly Criterion and Optimal f: The Fastest-Growth Bet Size You Shouldn't Use
Where the 1956 Kelly formula comes from, how f* = p − q/b works, why full Kelly brings 80%+ drawdowns, the cliff at 2× Kelly, and why 0.5–1% risk is the practical answer.
11 min readMAE and MFE: How Far Each Trade Went Against You, and Using It to Set SL and TP
MAE is how far a trade went against you, MFE how far it went your way while open. Read both charts to adjust Stop loss and targets from evidence, and avoid the traps.
11 min readRisk of Ruin: The Chance Your Account Hits a Point of No Return
A system with an edge can still be ruined. A 500-trade simulation shows how risk per trade, payoff shape and losing regimes raise the odds of −30% and −50%.
11 min readHow Many Trades Before a Result Means Anything? Sample Size and Standard Error
A win rate or average profit from 50 trades swings far more than it feels. Standard error, an expectancy confidence interval in R, and 20 traders on one system.
9 min readSharpe, Sortino, Calmar Compared, and How Martingale Fools Them
Sharpe, Sortino, Calmar/MAR, Recovery factor and the Ulcer index worked out on two equal-profit accounts. What each punishes, how each gets gamed, and which to use when.
12 min readRun Several Strategies, Not One: Diversification That Really Cuts Drawdown
Two systems with a small edge and low correlation can nearly halve drawdown. The maths, the effective number of bets, risk allocation, and fake diversification.
11 min readTime Stops: Exiting Because Time Ran Out, and When It Helps or Hurts
A time stop closes a trade that hasn't worked within N bars. We simulate 20,000 trades for momentum and mean-reversion edges, how to pick N, swap and weekends.
10 min readVolatility Clustering: Big Moves Follow Big Moves, and GARCH Made Simple
Tomorrow's direction is close to unpredictable, but the size of moves persists. Evidence from a GARCH simulation and gold, EURUSD and BTC data, plus how to size trades.
11 min readWeekend Gaps: Why a Stop Loss Doesn't Guarantee Your Exit Price
The market shuts at weekends but news does not, so Monday can open past your Stop loss. A gold example losing 3x the plan, gap-fill folklore and weekend sizing.
11 min readCompounding Position Size: Fixed Lot vs Fixed Fraction and the Kelly Formula
Fixed lot vs risking a % of the account, the math of compounding, why +50% then −50% leaves 75, the Kelly formula, and why too much risk makes an account grow slower.
10 min readCorrelation and Hidden Risk: Why Several Open Trades Can Be One Bet
Correlation runs from −1 to +1 and must be measured on returns, not prices. See how long EURUSD, GBPUSD and gold can be one dollar bet, and how to compute combined risk.
8 min readScaling In and Partial Close: What Adding and Taking Profits Really Change
How pyramiding differs from averaging down, and whether closing half at 1R and moving the rest to break-even beats holding to target, worked through step by step.
10 min readLocking a Losing Trade (Same-Symbol Hedge): Why It Equals Closing, Only Dearer
Locking means opening an equal opposite trade on the same symbol. The math shows your result freezes as if closed, while you pay double swap and must decide twice more.
10 min readTrailing Stops Compared: Tight Trails Win Small and Cut the Big Winners
How fixed, ATR/Chandelier, swing-low, moving-average, Parabolic SAR, step and time stops work, a 20,000-path simulation of expectancy, and backtests on gold.
14 min readATR Explained: Set Your Stop Loss and Lot Size by Market Volatility
ATR from the ground up, True Range with gaps, Wilder's smoothing and a worked example, then 1.5–3×ATR stops, ATR trailing stops, lot sizing and volatility filters.
9 min readGrid, Martingale and Averaging Down: Frequent Wins, One Trend Can Wipe You Out
How Grid, Martingale and averaging down really work, with step-by-step math and our gold backtest that won 65% of trades and still lost money.
9 min readStop Loss: Wide or Tight? Real Backtest Results on Gold
A tight SL looks safe but gets hit by normal swings and spread. Gold backtests where structure-based SLs beat tight ones, and how to cut the lot to keep risk the same.
8 min readTake Profit Near or Far? Gold Backtests Point to a Sweet Spot
Near targets win often but pay little. Targets right at the old high, or too far away, rarely get hit. Backtests on gold, plus the expectancy formula worked through.
10 min readA High Win Rate Doesn't Mean Profit: Check the Break-even Win Rate First
A 90% win rate can still lose if losing trades are much bigger than winners. Learn the break-even formula 1 ÷ (1 + RR), how spread shifts it, and real tests on gold.
7 min readSize your lot from Stop loss distance so every trade risks the same
How to work out lot size from the money you are willing to lose and your Stop loss distance. One formula for forex pairs and gold, with step-by-step examples.
5 min readHow to read drawdown, and the difference between Equity DD and Balance DD
Drawdown is how far your account falls from its peak, but reports show several versions. See what Balance DD hides and why lot size should be planned from Equity DD.
4 min readDoes moving your Stop loss to break-even really help?
Watching a winner reverse into your Stop loss hurts. But moving the SL to entry too early can cut total profit. See how the gains and costs net out in numbers.
4 min readWhy many traders risk only 1% per trade
Keeping risk per trade small means your account survives a long losing streak. See how risking 1%, 5% and 10% compare in numbers.
1 min read