Account Management
Every trade gets planned around its own risk and reward, but an account can still get into real trouble even when every individual trade was managed properly. The thing that needs managing is the exposure across all of them together, not each one in isolation.
Total exposure, not just individual risk
Three trades each risking 1% looks conservative on paper, but if all three are long GER40, long the Dow, and long a correlated part of a portfolio at the same time, a single macro move against risk assets hits all three at once. The real exposure that day is closer to 3% than 1%. Correlated positions need to be sized as a group, not as three separate 1% decisions that happen to move together.
Drawdown and recovery aren’t symmetric
Losing 20% of an account requires a 25% gain just to get back to even, and losing 50% requires doubling the account, because the percentage needed to recover always outpaces the percentage that was lost. That asymmetry is the real argument for keeping any single drawdown contained early, rather than trusting that a good enough win rate afterward will make up for it.
Example: a $10,000 account that drops to $8,000 needs a 25% gain to get back to $10,000. The same account dropping to $5,000 needs a 100% gain to recover, twice the account from half the starting capital.
Reducing size in a drawdown, not just after one
Cutting size after a big loss has already happened protects the next trade but not the one that just did the damage. Scaling size down progressively as drawdown deepens, for example cutting risk per trade in half after a defined loss threshold, keeps the account’s ability to recover intact through the stretch that threatens it, not after the threat has already passed.
What to track
A single account balance number hides more than it shows. Tracking equity against its own high-water mark, risk taken per trade as a rolling average, and exposure by correlated instrument group gives a clearer read on account health than the balance alone, which can sit flat for weeks while the composition of the risk underneath it changes completely.
Key takeaways
- Correlated positions need to be sized as a group, since they move together under the same macro pressure
- Drawdown and recovery aren’t symmetric: the deeper the drawdown, the more disproportionate the recovery needed
- Cutting size progressively as drawdown deepens protects the account before the real damage, not just after it
- Track drawdown from the equity high-water mark and exposure by correlated group, not just the account balance in isolation
Nothing on this page is financial advice. Trade your own account, manage your own risk.
Nothing on this page is financial advice. Trade your own account, manage your own risk.