Losses and gains are not symmetric. Lose 50% and you need a 100% gain to get back to where you were, because the gain is earned on a smaller balance. This one fact explains most of what risk management is for.
The recovery table
| Drawdown | Gain needed to recover |
|---|---|
| −10% | +11.1% |
| −20% | +25% |
| −30% | +42.9% |
| −50% | +100% |
| −75% | +300% |
Below about −20% the required gain starts running away from the loss. Below −50% recovery is mostly theoretical: it needs a doubling, at the moment confidence is lowest.
Risk per trade sets the depth
Drawdowns are mostly losing streaks, and losing streaks are a matter of probability, not character (see losing streaks are math). What you control is how much each loss in the streak costs. Ten losses in a row:
- at 1% per trade: about −9.6%
- at 2%: about −18.3%
- at 3%: about −26.3%
- at 5%: about −40.1%
The strategy is the same in every row. Only the size changed, and with it the difference between a drawdown you trade through and one that ends the account.
Risk per trade is not leverage
Risk per trade is the amount you lose if the stop is hit: stop distance times position size, as a share of the account. Leverage only decides how much margin the position ties up. A 2% risk with a tight stop and a 2% risk with a wide stop are the same risk; the second simply uses a smaller position.
That is why the stop comes first. Decide where the idea is wrong, then size the position so that distance costs your chosen percentage. Without a stop, risk per trade is undefined. The liquidation price is not a substitute.
Limits that hold under pressure
The rules that keep drawdowns shallow are easy to agree with and easy to break mid-session:
- A fixed risk per trade, typically 0.5%–2% of the account.
- A daily loss limit, after which you stop for the day.
- Cutting size during a drawdown, rather than raising it to win the loss back.
Backcandle's discipline rules turn the first two into settings: a maximum risk per trade, measured from the stop and size of each order, and a maximum daily loss. Each can be set to warn you or to block the order outright. The journal reports the maximum drawdown of every session, so you can see how deep your real drawdowns run at the size you actually trade.