Set the first stop from a capital-scaled MAE histogram

Minimize the largest single loss first

Harsh, zero-sum market settings are treated as a reason to minimize the size of the largest single loss before seeking other edges. The bound is read from how far complete trades already moved against the position, scaled to a chosen share of equity.

Specify a small capital fraction

Per-position exposure is specified as a small share of capital, preferably 2% or less. Serious practice is described as typically near 3% and not above 5%. Allocating 10-15% of capital to each position is described as producing a high probability of ruin on a horizon as short as about three months.

The capital fraction is the share of account equity assigned to one trade. It converts a dollar loss limit into point or tick buckets on the MAE chart.

Define the trade horizon before measuring loss

Entry and exit must be fully specified with no discretionary overrides so the trade horizon is defined before any loss measurement begins. Maximum adverse excursion is measured only inside that window.

Record maximum adverse excursion

Maximum adverse excursion is the largest open move against a long or short before the trade is closed. It is recorded after running the complete rules on live data for at least 60 and preferably 100 trades, and it is tabulated separately for winners and losers so a capital-scaled cutoff can be read from the two distributions.

Bin open losses by a share of capital

MAE frequencies are binned in ranges of about 1% of capital. A 30000-unit account with 600 units of risk on a 25-unit-per-point contract yields 12-point buckets, first 0-12, then 13-24.

Read the minimax cutoff from the two distributions

Winning-trade MAE is described as clustering in the first one or two buckets, while losing-trade MAE is described as smeared across the axis. That contrast is the basis for a stop that keeps most winners.

The minimax cutoff is the MAE level where winning trades still cluster while the long tail of large losers can be truncated. A companion chart of profit and loss by MAE range is used to confirm the cutoff. The illustrated case treats 12 points of adverse movement as a limit that still captures most winning trades.

Hold the bound through the position

After a cutoff is chosen it is retested on the same history, then left in force through the position so large winners survive, large losses are truncated, and exposure stays inside the chosen capital fraction.

The stop-loss is a precommitted exit placed at the MAE cutoff so a single position cannot consume more than the chosen fraction of equity. The trailing stop is the same MAE-derived bound kept in force for the life of the position, so later adverse movement is still capped after entry.

Apply the same tabulation to other structures

The same MAE tabulation is applied to distance beyond a trend proxy and to travel outside a range. A separate MAE study is used if a reverse is taken after the original stop is hit.