> ## Documentation Index
> Fetch the complete documentation index at: https://www.questforedge.io/llms.txt
> Use this file to discover all available pages before exploring further.

# How an Account Blew Up

#### Objective

To analyze how a trading account can collapse over time despite starting with a valid system and controlled risk.

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#### Initial Conditions

* Initial capital: \$10,000
* System: positive expectancy
* Risk per trade: 1%
* Execution: consistent

At this stage, the system is stable and functioning as intended.

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### Phase 1 — Normal Losses

A standard losing streak occurs:

* 5–7 consecutive losses
* Drawdown ≈ -5% to -7%

This is within expected statistical variation.

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### Phase 2 — First Deviation

The trader reacts to losses:

* Risk increased from 1% → 2%–3%
* Goal: recover faster

At this point:

* The system remains the same
* Risk profile changes

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### Phase 3 — Compounding Pressure

Another losing sequence occurs:

* Losses now larger due to increased risk
* Drawdown accelerates

Example:

* Account drops below \$9,000
* Drawdown ≈ -10% to -15%

Psychological pressure increases.

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### Phase 4 — Breakdown of Discipline

The trader begins to:

* Increase position size further
* Skip trades
* Close trades prematurely

Execution is no longer consistent.

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### Phase 5 — Risk Escalation

Risk per trade rises significantly:

* 3% → 5% or higher

At this stage:

* Losses compound rapidly
* Volatility increases
* System behavior becomes unstable

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### Phase 6 — Collapse

A short losing streak under high risk leads to:

* Rapid equity decline
* Loss of control
* Account failure

The account is effectively blown.

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### Analysis

The system did not fail.

The sequence of events was:

1. Normal losses
2. Increased risk
3. Accelerated drawdown
4. Emotional decisions
5. Loss of consistency

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### Key Insight

> Accounts do not fail because of a single event.\
> They fail through progressive increases in risk and breakdown of execution.

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### Structural Cause

The primary drivers of the collapse:

* Increasing risk during drawdown
* Inconsistent execution
* Attempt to recover losses quickly

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### Conclusion

A system with positive expectancy can fail in practice if:

* risk is not controlled
* execution is not consistent

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### Final Insight

The objective is not to avoid losses.

> It is to maintain a process that prevents losses from escalating into collapse.

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### Next Step

→ *How Much Should You Risk Per Trade?*