Risk & Position Sizing
The arithmetic behind position size, liquidation price, drawdown recovery and the limits worth enforcing in code.
- Session times and why 24/7 is not uniform
Crypto never closes but it does go quiet. The same strategy run at the wrong hours pays more and fills worse, for reasons unrelated to the signal.
- Scaling in vs entering all at once
A planned ladder and a rescue look identical in the arithmetic. The difference is whether the full size was decided before the first entry.
- Why position sizes drift upward
Nobody decides to oversize. It happens through six mechanisms that each look reasonable, and only one of them is about greed.
- Reading an equity curve honestly
The shape tells you about variance and sequence, which the headline return hides. What to look at, and the three ways a curve flatters a strategy.
- What to record in a trading journal
Most journals record outcomes, which is the least useful column. The fields that make a review answer questions, including the ones usually missing.
- Volatility and stop distance
A 2% stop is generous on one instrument and inside the noise on another. Sizing stops from volatility makes the same rule mean the same thing everywhere.
- What open interest tells you
Volume counts trades; open interest counts positions still held. The difference between the two is what makes a move informative or not.
- Spread, depth and what liquidity actually costs you
The quoted spread is the visible part of a cost that grows with your size. What to check before assuming a market can absorb your position.
- Risk per trade vs risk per day
A 1% per-trade rule says nothing about what a day can cost. The two limits control different things and you need both.
- Liquidation cascades
Forced selling begets forced selling. Why leveraged markets move further than the news justifies, and what it means for stop placement and sizing.
- Perpetuals vs dated futures
One never expires and pays funding to stay near spot. The other expires and converges by contract. The difference decides how holding cost behaves.
- Leverage is not risk
Leverage sets the margin you post and where liquidation sits. Risk is set by stop distance and position size. Conflating them produces both kinds of mistake.
- How many trades before you can judge a strategy
Twenty trades tells you nothing, and high-R strategies need far more than low-R ones. Why, and what to look at while the sample is still too small.
- What a trailing stop actually costs
It locks in gains automatically and cuts your average win. Whether that helps depends on how your winners behave, which you can measure.
- What partial exits do to your expectancy
Taking half off at 1R feels like risk management. It caps the winners while leaving losers at full size, and the arithmetic is not obviously favourable.
- Correlation and position limits
Three positions sized at 1% each are not three 1% risks if they move together. Per-trade sizing cannot see this, which is why a separate cap is needed.
- Position sizing methods compared
Fixed fractional, fixed dollar, fixed quantity and volatility-adjusted. Each makes a different implicit bet about what stays constant across trades.
- Sequence of returns risk
The same set of returns in a different order produces a different ending balance once money is being added or withdrawn. Averages hide this entirely.
- Averaging down vs dollar-cost averaging
Nearly identical arithmetic, opposite origins. One is a schedule decided in advance, the other a decision made under pressure — and that difference is everything.
- How to choose a stop-loss level
A stop belongs where the idea is wrong, not where the loss feels acceptable. The difference decides whether the number means anything at all.
- Slippage and market impact
The gap between the price you expected and the one you got. Why it is worst on stop-outs, scales with size, and quietly lowers every R multiple you record.
- Maker vs taker fees
Takers pay more, but the cheaper option has a hidden cost — the fills you miss are not randomly selected. When each is actually the better choice.
- What is maintenance margin?
The minimum equity a position must keep to stay open. It is tiered by size, which is why a bigger position liquidates earlier at the same leverage.
- Isolated vs cross margin
Cross margin moves liquidation further away and couples every position to every other. Isolated caps the loss per position and liquidates sooner. Which risk you prefer.
- Expectancy vs win rate
Win rate alone says nothing about whether a strategy makes money. Expectancy combines it with payoff, and the two move against each other by construction.
- Risk of ruin
The probability of losing enough capital to stop trading. What the formula assumes, why the assumptions fail, and the more useful question to ask instead.
- Designing a daily loss limit
Picking the number is the easy part. The design questions are what counts toward it, what happens when it trips, and why closing orders must be exempt.
- Losing streak probability
How likely a run of consecutive losses is, what it does to an account at a given risk per trade, and why a cooldown rule is arithmetic rather than sentiment.
- Why tight stops can cost more
Halving the stop distance doubles the position for the same risk — and doubles how often noise takes you out. The trade is size for frequency, and it is rarely priced.
- What is an R multiple?
R is one unit of risk — the distance from entry to stop. Measuring results in R instead of currency makes trades comparable and separates sizing from selection.