📉 How to Control Drawdown Using Dynamic Position Sizing
🎯 The Lesson
Drawdown isn’t caused by losing trades —
it’s caused by not adjusting position size when market conditions change.
Professional traders keep drawdown shallow by dynamically adjusting their size based on performance and volatility.
Retail traders keep size constant — and suffer deeper losses.
Dynamic position sizing is the easiest way to cut drawdowns in half while keeping your strategy the same.
🔢 1. The Core Idea: Reduce Size When Accuracy Drops
Dynamic sizing rule:
👉 After 3 consecutive losses, cut your risk by 50%.
Example:
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Normal risk = 1% per trade
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After 3 losses → risk = 0.5%
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After return to break-even → go back to 1%
This protects your account when you’re out of sync with the market.
📊 2. Increase Size Only When Equity Allows It
Increase risk ONLY when your equity is at a new high.
If account balance grows by 5–10%, you can raise risk:
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from 0.5% → 1%
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or from 1% → 1.25%
Never increase size during drawdown.
Big size + bad accuracy = account damage.
📉 3. Use Volatility to Adjust Position Size
High volatility = smaller size
Low volatility = normal size
Example using ATR:
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If ATR increases 50% (market more volatile)
👉 reduce lot size by 30–40%
This prevents getting stopped out by noise.
🧮 4. The Risk Scaling Formula
For stable equity growth, use the formula:
New Risk % = Base Risk × (Equity / Initial Equity)
Example:
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Initial equity: $5,000
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Current equity: $5,500
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Base risk: 1%
New risk = 1% × (5500/5000)
= 1% × 1.10
= 1.10% risk
This scales size gently, without sudden jumps.
🔁 5. Use a Drawdown Ladder to Protect Equity
When drawdown reaches:
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5% DD → reduce position size by 30%
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8% DD → reduce position size by 50%
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10% DD → stop trading and review
This prevents deep, dangerous drawdown.
Funds use this exact system.
🛡️ 6. A Smaller Size Can Save Your Entire Month
Example:
Trader A (no dynamic sizing)
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6 losses at 1% each → –6% drawdown
Trader B (dynamic sizing)
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First 3 losses = –3%
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Next 3 losses at half risk → –1.5%
Total drawdown: –4.5%
Same strategy.
Same losses.
Different drawdown.
🚀 Takeaway
Dynamic position sizing is the key to long-term survival.
It adapts risk to market conditions, protects your capital during losing periods, and lets you scale safely during winning periods.
Control size → control drawdown → control your entire account.
📢 Join my MQL5 channel for more trading & risk-management insights:
👉 https://www.mql5.com/en/channels/issam_kassas
