Portfolio risk: drawdown, sizing and daily limits

Reconcile drawdown recovery, losing streaks, correlated exposure, lagged volatility sizing and daily risk budgets with original worked examples.

Course outline

1. 1

   Drawdown recovery: calculate the return needed to break even

   Calculate peak-to-trough drawdown and the recovery return on remaining equity. Separate deposits, realized balance and marked account equity.

   7 min
2. 2

   Fixed fractional risk: model a losing streak before trading

   Compare fixed cash risk with risk recalculated from current equity. Work through compounded losses, size rounding and the limits of idealized stop models.

   7 min
3. 3

   Portfolio heat: add correlated positions before sizing a new trade

   Calculate combined planned stop risk and a separate joint-shock loss. Avoid treating BTC, ETH and altcoin positions as independent risk budgets.

   7 min
4. 4

   Volatility position sizing: stress the lag in an ATR-based rule

   Calculate an ATR-based quantity, then stress a volatility jump before the estimate updates. Separate volatility, price direction and stop execution.

   7 min
5. 5

   Daily loss limit: reserve open risk before taking another trade

   Calculate remaining daily risk from realized losses, open-position exposure and cost reserves. Define the reset time and what happens after a limit breach.

   7 min

Open full-size diagram

1. Drawdown recovery: calculate the return needed to break even
2. Fixed fractional risk: model a losing streak before trading
3. Portfolio heat: add correlated positions before sizing a new trade
4. Volatility position sizing: stress the lag in an ATR-based rule
5. Daily loss limit: reserve open risk before taking another trade

Educational material. Examples do not establish a profitable strategy. Trading costs, gaps and liquidation can produce losses beyond a planned stop.