Chapter 2 The Strategy of Risk Reduction
Let’s consider a real-life trading example. Renato is a Forex trader who starts with an equity balance of $10,000. He decides to risk 2% per trade. However, after his first loss, he cuts his risk in half to 1%. If he incurs another loss, he cuts his risk in half again to 0.5%. He continues this process, halving his risk after each loss.
After eight consecutive losses, Renato’s account draws down by only 5%, a loss of $538. Despite the losing streak, he’s still in the game, thanks to his risk management strategy.
