Why size matters more than entries
Most traders spend their time searching for better entries. The thing that decides whether an account survives is much duller: how much of it you risk on each trade. With the same strategy and the same luck, two traders can end in very different places purely because one bet 1% and the other bet 10%.
To show it, we ran a simulation. Each trader makes 300 trades. They win 50% of them, a winner pays 1.5 times what a loser costs (so each trade has a positive expected value), and trades are independent. We repeated that for 20,000 traders at each risk size and measured how deep each account fell along the way.
40 simulated accounts at 2% risk vs 40 at 10% risk
Same edge, same luck, log scale
What the simulation found
| Risk per trade | Chance of a 30% drawdown | Chance of a 50% drawdown | Median worst drawdown |
|---|---|---|---|
| 1% | 0% | 0% | 10% |
| 2% | 5% | 0% | 19% |
| 5% | 94% | 23% | 42% |
| 10% | 100% | 98% | 70% |
At 1% risk a 30% drawdown almost never happens. At 5% it is the normal case. At 10%, even with a real edge, a 50% drawdown happened in 98% of runs: the strategy was fine, the bets were fatal.
The arithmetic of recovery
A loss is harder to undo than it looks, because the gain you need is measured against a smaller account. Lose 50% and you need a 100% gain just to get back to even.
The gain needed to get back to even
After a loss of this size
How to size a gold trade, step by step
- Decide the risk in dollars. Account times risk percent. On a $5,000 account, 1% is $50.
- Place the stop where the idea is wrong, not where it is convenient. Measure the distance in dollars.
- Divide. Lot size = dollars at risk divided by (stop distance in dollars times the value of $1 per lot). At most brokers one lot of XAUUSD is 100 ounces, so a $1 move is $100 per lot. Check your broker's contract size.
- Worked example. $50 at risk with a $10 stop: 50 / (10 x 100) = 0.05 lot. If the stop is hit you lose about $50, which is 1% of the account.
- Set a daily loss limit. For example 3% of the account. When it is hit, stop for the day.
Leverage is not risk
Leverage is how much exposure your broker allows. Risk is how much you lose if your stop is hit. A trader using 1:500 leverage can still risk 1% per trade, and a trader on 1:10 can risk 20%. The stop and the lot size decide the risk, not the leverage.
A starting rulebook
- Risk 0.5% to 2% of the account per trade. Below 1% while you are learning.
- Never risk more than a set total across open trades.
- Set the stop before you enter, and never move it further away.
- Reduce size after a losing streak, do not increase it.
- Judge the strategy over at least a hundred trades, not five.
Frequently asked questions
How much should I risk per trade?
There is no universally safe number, but in our simulation risking 1% to 2% kept a 30% drawdown rare over 300 trades (0% and 5% of runs), while 5% made it likely (94%).
How do I calculate lot size for gold?
Lot size = dollars at risk / (stop distance in dollars x dollar value of a $1 move per lot). At most brokers one lot of XAUUSD is 100 ounces, so $1 equals $100 per lot. Confirm with your broker.
What drawdown is normal?
Deeper than most people expect. With a real edge and 2% risk, the median worst drawdown over 300 trades in our simulation was 19%.
Is higher risk worth it with a good strategy?
Higher risk raises the median result but also raises the chance of a deep drawdown. With 10% risk, 98% of simulated traders with a real edge still fell 50% at some point.
Sources and method
- Simulation: 20,000 accounts per row, 300 trades each, win rate and payoff as stated, independent trades, no costs, fixed seed so it can be repeated. Run by our own code.
- Gold contract size is 100 troy ounces per standard lot at most retail brokers; check your own broker's specification.