Module 2 · Foundation

Risk management & position sizing

Position sizing, Kelly criterion, stop placement, and the math of drawdown survival.

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Position sizing calculator

Learn

Position size ($) = Account × Risk% ÷ Stop distance% Effective leverage = Position size ÷ Account Risk:reward = Distance to target ÷ Distance to stop

Practice

Account sizeUSD

Risk per trade%

Entry priceUSD

Stop priceUSD

Target priceUSD

Max loss

$100

risk of account

Position size

$3,333

notional exposure

Effective leverage

0.3×

output of sizing math

Risk:reward

2.67

reward per unit risk

Potential profit

$267

if target hit

Setup looks acceptable. Confirm all seven pre-trade gates before entering.

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Recall0/1

Recall

In disciplined sizing, leverage is…

Kelly criterion explorer

Learn

Kelly % = W − (1 − W) / R W = win rate · R = avg win ÷ avg loss

Practice

Win rate%

Average win$

Average loss$

Account size$

Full Kelly

26.7%

theoretical maximum

Half Kelly

13.3%

recommended in practice

Quarter Kelly

6.7%

conservative choice

Expected value/trade

$80

per trade average

Half Kelly $ bet

$1,333

if edge is positive

Full Kelly is very high. Inputs may be optimistic — always use Half Kelly or less in live trading.

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Recall0/1

Recall

Why use Half Kelly instead of Full Kelly in live trading?

Drawdown recovery asymmetry

Learn

Drawdown	Recovery needed	Recovery burden	Verdict
10%	+11.1%	Light	Manageable
25%	+33.3%	Moderate	Painful but survivable
50%	+100%	Severe	Account doubling required
75%	+300%	Extreme	Effectively unrecoverable
90%	+900%	Terminal	Game over

Drawdown recovery is brutally non-linear. A 50% loss needs a 100% gain just to break even. This asymmetry is the entire mathematical argument for capping risk per trade at 1–2%.

Recall0/1

Recall

A 50% drawdown requires what gain to break even?