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This worked example compares the effect of risking 1%, 3%, or 5% of current equity through 15 consecutive full-loss trades. It isolates position sizing; it does not claim that every system will experience exactly this sequence.

Assumptions

  • Initial equity: $10,000
  • Position sizing: fixed fraction of current equity
  • Outcome: −1R on every trade
  • No deposits, withdrawals, fees, slippage, gaps, or partial exits
After (n) losses at fractional risk (r), remaining equity is: remaining equity = initial equity × (1 − r)^n

Results after 15 losses

The sequence is identical. Position sizing alone changes a difficult period into either a manageable drawdown or a loss of more than half the account.

Why 5% becomes fragile

Fixed-fractional sizing reduces the dollar amount after each loss, so the account does not literally reach zero. The practical problem is different:
  • the drawdown can exceed the trader’s tolerance;
  • the recovery requirement becomes nonlinear;
  • strategy execution often deteriorates under pressure;
  • a prop account may breach its loss limit long before the balance approaches zero;
  • gaps and slippage can exceed the assumed 1R loss.
A strategy can have positive expectancy and still be unusable at an aggressive size because its normal outcome distribution conflicts with the account’s risk capacity.

Prop-account interpretation

If the nominal account is USD 100,000 but the permitted loss buffer is USD 10,000, a $5,000 planned loss is not merely “5% risk.” It consumes half of the total loss allowance. Two full losses, costs, or slippage can place the account at its hard boundary. Position risk should therefore be evaluated against both account equity and the usable drawdown buffer.

How much should you risk?

Choose size from uncertainty and acceptable drawdown.

Drawdown mathematics

Understand the asymmetric recovery requirement.

Surviving 20 losses

Extend the same calculation to a longer sequence.

Prop risk framework

Size from usable loss capacity rather than headline balance.
This is a deterministic illustration, not a forecast. Real outcomes include variable wins and losses, costs, execution effects, and changing market conditions.