Lot size and drawdown: the maths beginners skip

Most blown accounts are not the result of a bad strategy. They are the result of a good strategy running at a size the account could never survive. Two calculations, done before you start, prevent nearly all of it.

Calculation one: what a losing streak costs

A system that wins 60% of the time will still lose six in a row on a regular basis — that is ordinary variance, not misfortune. So take your risk per trade and multiply it by the longest losing streak you are prepared to sit through.

At 2% per trade, six losses take you down roughly 11%. At 5% per trade, the same six losses take you down 26% and the psychological damage is worse than the number. Decide which of those you can watch happen without switching the bot off at the exact wrong moment.

Calculation two: what recovery demands

Losses and gains are not symmetric, and the asymmetry gets brutal quickly.

• Down 10% → you need 11% to get back
• Down 25% → you need 33%
• Down 50% → you need 100%
• Down 70% → you need 233%

Protecting the account below a 20% drawdown is not caution. It is the difference between a bad month and a dead account.

Sizing that adapts

Fixed lots ignore what has happened to the balance. Percentage risk shrinks the position as the account falls, which is exactly the behaviour you want during a losing run, and grows it again as the account recovers. Every bot we run sizes from the current balance, never from a number typed in once and forgotten.

Grid and hedge systems need a different question

With a grid, risk per trade is the wrong measure — the meaningful figure is total exposure if price runs to the last layer. Add every layer's lot size, multiply by the full distance to the final level, and check that number against your balance. If a complete adverse run would take more than a quarter of the account, the grid is too aggressive regardless of how good the equity curve looked last month.

Set the stop before the target

The exit that keeps you in business is the losing one. Decide the maximum you will lose on a trade, on a day and on a month, and put those limits into the bot rather than into your intentions. A daily loss cap that halts trading is the single most useful feature we have added to our own systems.

The maths is not complicated. It is just unglamorous, and it is the reason some accounts are still trading two years later.