Calculating what percentage of capital is exposed to risk per trade to determine lot/share size. It is the most critical factor determining survival probability, acting as a countermeasure to the mathematical "asymmetry of recovery."
How to Do It
Cap the maximum risk per trade at 1–2% of total capital, and calculate lot size backward from this amount.
Effect
Ensures mathematical recovery is possible even after a losing streak, preserving mental bandwidth for objective judgment.
How to Use
1. Check current total capital
2. Decide risk tolerance (e.g., 1%)
3. Divide by stop distance to calculate exact position size