Beginner–Intermediate12–18 minLesson 4

Risk Management and Drawdown Math

Preserve capital first: position sizing, loss limits, drawdown/recovery math, diversification, and protections against extremes.

Lesson Progress0%

4.1. Position Sizing and Risk Budget

Keep per-trade risk small (0.25–1%). Define daily/weekly loss stops and stop-trading rules.

Size positions from risk, not from 'confidence'.

Position Sizing Calculator

Account Balance

Risk per Trade %

0.25%

0.5%

Custom

Stop Distance (pips)

30 pips

Pair Type

Max Daily Loss %

Max Weekly Loss %

Results

Dollar Risk:$100.00

Lot Size:0.33 lots

Max Trades/Day:2

Daily/weekly stops: after limit is hit — stop trading for that period.

4.2. Drawdown & Recovery Math

Drawdowns are inevitable. Recovery grows non-linearly: after −20% you need +25% to recover; after −50% you need +100%.

−10%

Drawdown

+11.1%

To Recover

−20%

Drawdown

+25%

To Recover

−30%

Drawdown

+42.9%

To Recover

−50%

Drawdown

+100%

To Recover

Recovery Calculator

Drawdown %

−15%

Monthly Return %

3%/mo

Recovery Required

To Break Even:+17.6%

Est. Months:6

Target smaller DDs via lower risk per trade and trading halts.

4.3. Correlation and Diversification

Uncorrelated systems reduce portfolio swings. Combining edges across instruments/timeframes can lower drawdown.

Diversification Calculator

Number of Systems

Volatility per System (monthly %)

10%

Pairwise Correlation

0.3

Range: -0.5 (inverse) to 0.9 (highly correlated)

Portfolio Volatility

8.1%

Lower correlation → lower portfolio DD for same individual risks.

Combine different regimes (trend + range) and symbols to avoid synchronized losses.

4.4. Protections Against Extremes

Define circuit breakers and execution guards to avoid bad market conditions.

Protection Policy Configurator

ATR(14) Percentile Range

Low:20th

High:80th

Max Spread

Max Slippage (pips)

1 pip(s)

News Blackout

Before:min

After:min

Loss Streak Breaker

After:losses

Cooldown:

Policy Summary

• Volatility: Trade only when ATR(14) is between 20th–80th percentile.
• Spread: Max 1.5x median spread.
• Slippage: Max 1 pip(s) allowed.
• News: Pause 15 min before and 15 min after high-impact news.
• Loss Streak: Pause after 3 consecutive losses, cooldown: 4h.

4.5. Practice: Build Your Personal Risk Plan

Lesson 4 Quiz

Teste dein Verständnis mit 3 Fragen. Bestehe mit 2/3 richtigen Antworten.

Educational content only. Not financial advice. Trading involves risk of capital loss. Past performance does not guarantee future results.

Back to Lesson 3 Next: Truthful Backtests in MT5

4.1. Position Sizing and Risk Budget

Keep per-trade risk small (0.25–1%). Define daily/weekly loss stops and stop-trading rules.

Size positions from risk, not from 'confidence'.

Position Sizing Calculator

Account Balance

Risk per Trade %

0.25%

0.5%

Custom

Stop Distance (pips)

30 pips

Pair Type

Max Daily Loss %

Max Weekly Loss %

Results

Dollar Risk:$100.00

Lot Size:0.33 lots

Max Trades/Day:2

Daily/weekly stops: after limit is hit — stop trading for that period.

4.2. Drawdown & Recovery Math

Drawdowns are inevitable. Recovery grows non-linearly: after −20% you need +25% to recover; after −50% you need +100%.

−10%

Drawdown

+11.1%

To Recover

−20%

Drawdown

+25%

To Recover

−30%

Drawdown

+42.9%

To Recover

−50%

Drawdown

+100%

To Recover

Recovery Calculator

Drawdown %

−15%

Monthly Return %

3%/mo

Recovery Required

To Break Even:+17.6%

Est. Months:6

Target smaller DDs via lower risk per trade and trading halts.

4.3. Correlation and Diversification

Uncorrelated systems reduce portfolio swings. Combining edges across instruments/timeframes can lower drawdown.

Diversification Calculator

Number of Systems

Volatility per System (monthly %)

10%

Pairwise Correlation

0.3

Range: -0.5 (inverse) to 0.9 (highly correlated)

Portfolio Volatility

8.1%

Lower correlation → lower portfolio DD for same individual risks.

Combine different regimes (trend + range) and symbols to avoid synchronized losses.

4.4. Protections Against Extremes

Define circuit breakers and execution guards to avoid bad market conditions.

Protection Policy Configurator

ATR(14) Percentile Range

Low:20th

High:80th

Max Spread

Max Slippage (pips)

1 pip(s)

News Blackout

Before:min

After:min

Loss Streak Breaker

After:losses

Cooldown:

Policy Summary

• Volatility: Trade only when ATR(14) is between 20th–80th percentile.
• Spread: Max 1.5x median spread.
• Slippage: Max 1 pip(s) allowed.
• News: Pause 15 min before and 15 min after high-impact news.
• Loss Streak: Pause after 3 consecutive losses, cooldown: 4h.