Bound the loss before leverage changes size

Three design parts stay linked

Portfolio selection, money management, and risk control are treated as three linked design parts. Omitting any one raises the chance of poor results.

A profitable entry method can still lose money if sizing is poor, and no sizing method turns a losing method into a winning one.

Money management here means initial size, later scale-in or scale-out, and equity filters that can reduce or halt trading.

A fixed count does not grow with equity

Fixed contract sizing uses a constant contract or share count that does not automatically grow when equity is reinvested.

Portfolio simulation statistics only make sense after trades are scaled with capital and the model states whether that capital is reinvested or held fixed.

Volatility keeps a planned loss inside a bound

Volatility position sizing sets size from account equity, volatility, stop distance, and allowed exposure so a planned loss stays inside a pre-set bound.

Editorial: This is the filter that keeps a loss or exposure decision bounded before a trade is placed, and it can be checked again throughout the position.

A growth fraction is a later test

A constant fraction of equity at risk is a starting test of how per-trade risk changes returns and the chance of complete loss. That fixed-fractional rule places a constant percent of equity at risk on each trade to map how the percent changes those outcomes.

The Kelly criterion is a growth-oriented capital fraction walked forward from prior results. An oversized fraction has produced simulated wipeouts.

Path-dependent changes need separate tests

Scale-in, scale-out, and asymmetric leverage depend on the path of returns and need separate tests. A constant-fraction rule assumes little knowledge of that path.

Asymmetric leverage means raising or cutting leverage differently on the way up and the way down. Results depend on the path of returns.

Applying a sizing rule usually raises position size and therefore raises risk readings such as peak-to-trough equity drawdown, per-trade loss, and chance of ruin.