How much can I lose?

The most useful question to answer before you start, and the one most people answer afterwards.

The worst case on one position

Multiply two numbers you already control: how big a position can get, and how far it can fall before the stop sells it.

A $20,000 account with a 10% position cap and a 15% stop:

$20,000 × 10% = $2,000 position $2,000 × 15% = $300, or 1.5% of the account

That’s your worst normal case on one trade. If that number feels fine, your settings are sensible. If it makes you wince, change the settings rather than hoping.

Two caveats, both real. A stop is an instruction, not a guarantee — an overnight gap can sell you below your level. And if you hold five positions that all fall together, you can lose five times that in a day.

Why recovering is harder than losing

This is the part that isn’t intuitive:

You lose	To get back to level you must make
10%	11%
20%	25%
33%	50%
50%	100%
67%	200%

The asymmetry gets vicious quickly. A 50% loss needs a double just to break even — and if the strategy that lost 50% could reliably double, it wouldn’t have lost 50%.

This is the whole argument for small position sizes, and it’s arithmetic rather than temperament.

The risk nobody puts a number on

Losing money is survivable. What ends most people is a stretch bad enough that they stop — usually near the bottom, usually right before the recovery.

So the real question isn’t “how much can I lose”, it’s “how much can I lose and still be running this next year?” Those are different numbers, and the second one is smaller.

A useful exercise, and it takes two minutes: look at your strategy’s worst historical drawdown, apply it to your actual account, and say the resulting figure out loud. “I would be down $4,300 and it would have taken four months.” If that sentence is fine, you’re sized correctly. If it isn’t, you now know before it happens, which is the only time knowing is any use.