Compounding or fixed position size: which do you do?
Compounding grows positions as the account grows; fixed size keeps risk constant in money terms. The maths of compounding is attractive, and the psychology is harder — bigger positions after wins, smaller after losses.
Which do you use?
- your method and why
- how you handle position size after a losing streak
- what you'd recommend for a beginner's first year
The drawdown guide shows how size decisions interact with losing streaks.
Background: Drawdown and recovery: why a 50% loss needs a 100% gain
Losses and gains aren't symmetrical. See how much you need to recover from a drawdown, what losing streaks do at different risk levels and how to set limits.
How much do you need to gain to recover from a 50% loss?
100%. The gain needed is the loss divided by one minus the loss, so larger drawdowns need disproportionately larger gains.
What is maximum drawdown?
The largest fall in account value from a peak to a later low, before a new peak is reached, usually expressed as a percentage.
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