OptiNod Academy

Risk Management

Browse all 11 parts in the Risk Management series and start from the section you need.

What this series covers

Decide what one trade can lose, calculate how leverage shortens the distance to liquidation, then check whether the size survives a losing streak and the drawdown that follows.

Where to start

Expectancy: Why a High Win Rate Can Still Lose Money

Later parts reuse the terms the earlier ones define, so reading in order leaves fewer gaps.

Learning path

1. Start with expectancy

Settle first why a win rate alone does not tell you the outcome.

  1. Expectancy: Why a High Win Rate Can Still Lose Money Win rate is only one input in expectancy. Evaluate a system by combining win rate with reward-to-risk, then check sample size and trade frequency as well.

2. 1R — position size and stop placement

Set the amount at risk and the stop level together.

  1. Position Sizing: How Much to Risk on Each Trade Account survival comes down to how much you risk on one trade. Size is calculated from the stop distance, and correlated positions should be treated as one bet.
  2. Stop Placement: Let Volatility Define the Level A stop is the price where your entry thesis is invalidated. Instead of using a fixed percentage, work backward from structure and ATR to define your stop distance and set 1R.

3. Leverage, liquidation and margin mode

Calculate how much a multiplier shortens the distance to liquidation.

  1. Leverage vs. Position Size — Multiplier Sets the Distance to Liquidation, Stop and Quantity Set Your 1R Leverage decides margin efficiency, while the real risk of a single trade is set by your stop distance and quantity. Hold the same 1R and the multiplier only changes the distance to liquidation; the true danger of high leverage is the moment the liquidation price sits closer to your entry than your stop.
  2. Liquidation Price Math — Leverage Sets the Distance to Your Liquidation Price Leverage sets the distance to your liquidation price. If your stop sits farther away than the liquidation price, the stop never fires and liquidation comes first. This covers how to calculate, before you enter, how many percent the liquidation price sits away from the current price.
  3. Cross Margin vs. Isolated Margin — The Fork Where One Position's Liquidation Empties the Whole Account Cross Margin buys you a later liquidation at the cost of opening a path where a single event empties the entire account. This covers how to pick between the two modes based on how far into the account a loss is allowed to reach.

4. Losing streaks and drawdown limits

Work through risk of ruin, maximum drawdown, recovery maths, Kelly and correlation.

  1. Risk of Ruin: Position Sizing Determines Account Survival Even with the same win rate and reward-to-risk ratio, risk of ruin rises nonlinearly as the percentage risked per trade increases. A strategy can have positive expectancy, but oversizing can push the account into an unrecoverable drawdown after a single losing streak.
  2. Maximum Drawdown: The Limit That Determines Whether You Can Keep Trading a Strategy Maximum drawdown is not just a record of past losses. It is the capital and psychological limit that determines whether you can keep trading a strategy. Recoveries are asymmetric, and live drawdowns are usually deeper.
  3. The Drawdown Recovery Math — Lose 50% and You Need 100% Just to Break Even Loss rate and recovery rate are not symmetric. The deeper the drawdown, the faster the return needed to get back to even accelerates. Under compounding, controlling deep drawdowns is your number-one lever.
  4. The Kelly Criterion — Separate Loss Risk From Position Allocation The binary Kelly fraction measures equity lost on a losing bet. Translate a separately chosen risk limit into position size using the entry-to-stop distance, and assess uncertainty, drawdowns, and joint exposure before sizing.
  5. Correlation and Exposure: Why More Coins Do Not Always Mean Diversification Holding five altcoin longs is often five bets on the same BTC move. This article explains how to assess total exposure by asset class and direction.