Resizing After a Drawdown: The Math of Fixed Fractional Risk
Posted: Wed Oct 28, 2026 6:45 pm
Resizing After a Drawdown: The Math of Fixed Fractional Risk
Scenario: your account started at 10,000 dollars. After a rough month, it stands at 8,500. Your plan uses 1 percent risk per trade, with a 25-pip stop on EUR/USD.
Work it out. At the start, risk was 100 dollars, and the lot size was 100 divided by 250, or 0.40. Now risk is 85 dollars, so the lot size is 85 divided by 250, which is 0.34.
The position shrank by 15 percent, matching the account. That is the automatic protection of fixed fractional sizing: after losses, you trade smaller, which slows further damage.
Compare with a trader who stays at 0.40 lots. At 8,500, a 25-pip stop at 0.40 lots risks 100 dollars, which is 1.18 percent of the current balance. The trader's risk percentage has crept up while the account shrank.
Recovery math adds a point. After a 15 percent loss, you need about a 17.6 percent gain to get back. Trading smaller reduces the speed of recovery, but protects against the second loss on top of the first.
Some plans add a rule to reduce risk further during drawdowns, as in the graduated return approach.
Takeaway: recalculate position size from current equity, not from your starting balance.
Practical step: recompute your standard lot size for a 25-pip stop at your current equity and compare with what you used last month.
Scenario: your account started at 10,000 dollars. After a rough month, it stands at 8,500. Your plan uses 1 percent risk per trade, with a 25-pip stop on EUR/USD.
Work it out. At the start, risk was 100 dollars, and the lot size was 100 divided by 250, or 0.40. Now risk is 85 dollars, so the lot size is 85 divided by 250, which is 0.34.
The position shrank by 15 percent, matching the account. That is the automatic protection of fixed fractional sizing: after losses, you trade smaller, which slows further damage.
Compare with a trader who stays at 0.40 lots. At 8,500, a 25-pip stop at 0.40 lots risks 100 dollars, which is 1.18 percent of the current balance. The trader's risk percentage has crept up while the account shrank.
Recovery math adds a point. After a 15 percent loss, you need about a 17.6 percent gain to get back. Trading smaller reduces the speed of recovery, but protects against the second loss on top of the first.
Some plans add a rule to reduce risk further during drawdowns, as in the graduated return approach.
Takeaway: recalculate position size from current equity, not from your starting balance.
Practical step: recompute your standard lot size for a 25-pip stop at your current equity and compare with what you used last month.