Understanding Risk — The Maths That Keep You in the Game.

The Math of Long-Term Survival

This is the most critical module in Phase 1. A trader who masters position sizing and risk management can survive even with a mediocre strategy. A trader who ignores this will blow up their account, regardless of how good their entries are.

The Mathematics of Ruin

Consider what happens to an account during a standard losing streak of 10 consecutive trades (a normal occurrence over a 100-trade sample size):

• At 10% Risk Per Trade: A run of 10 losses wipes out over 65% of your account capital. To recover back to break-even from a 65% drawdown, you must generate a massive **185% return** on your remaining capital just to get back to zero.
• At 1% Risk Per Trade: A run of 10 consecutive losses draws your account down by only 9.5%. A 10.5% return on your remaining balance gets you back to break-even. This is easily achievable and structurally manageable.

The Position Sizing Protocol

To keep risk fixed at exactly 1% on every trade, your position size must change depending on your stop loss distance:

If you have a £10,000 account and risk 1% (£100):

• A 50-pip stop loss means you trade exactly **0.20 lots**.
• A 25-pip stop loss means you trade exactly **0.40 lots**.

In both cases, if the trade hits your stop loss, you lose exactly £100. Sizing positions this way completely removes the risk of catastrophic account damage.