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On drawdown management – how far is too far before adjustment?
Still trying to get my head around proper risk sizing relative to overall capital, especially with positions that might run for a few days. I've been aiming for a 1-2% max single-trade risk, but when does a cumulative drawdown across several small losses necessitate a temporary reduction in that per-trade risk? Is there a common threshold, like 5% or 10% from peak equity, that triggers a re-evaluation of the current strategy or sizing, or is it more nuanced than a simple percentage?
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There's no universal threshold, but many traders start re-evaluating their strategy or reducing risk at 5% or 10% from peak equity. It's more about the statistical significance of the drawdown than an arbitrary number.