Hey there, lovely subscribers, welcome back. If you just stumbled upon this blog, you are welcome. This is a space for learning where I share educational content on fundamentals, practical tips on trading psychology and risk management.

Let’s be honest: when most people start trading, they look at risk management like a boring seatbelt. It feels restrictive. They want to talk about big leverage, massive positions, and doubling their account overnight.

I used to look at it the exact same way until I learned the hard math of how drawdowns actually work.

Speaking of drawdowns, I’ve put together a detailed episode on Forex with Ntombi Podcast covering the drawdown topic.

The Trap of Variable Sizing

When you don’t stick to a fixed percentage of your account per trade, your risk is essentially at the mercy of your emotions. After a winning streak, you feel invincible, so you increase your size. After a couple of losses, frustration sets in, and you might double down to “make it back fast.”

The Problem

The math of losses is extremely unforgiving. If you lose 50% of your account, you don’t need a 50% gain to get back to even; you need a 100% gain just to return to where you started.

The Power of Fixed Fractional Risk

Fixed fractional risk refers to the practice of risking a small, predetermined portion of your account equity on any individual trade.

• When you win, your dollar risk increases slightly because your account balance is larger, which naturally enhances your growth through compounding.
• When you lose, your dollar risk decreases since your account balance is smaller, acting as a built-in shock absorber that protects you from significant drawdowns.

Do not view this as a limiting rule, but as an essential survival strategy. Markets can often experience unpredictable losing streaks, but using fixed fractional sizing ensures that no single bad day in the market can eliminate you permanently. This protects you against a margin call, otherwise known as blowing an account.

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