Lesson 6 of 6 · 8 min

Correlation and Drawdown at Account Level

So far we have talked about a single position. Your account, however, doesn't see positions, only the overall result. You can follow the 1% rule on every order and still risk more than you think.

Correlation: three positions, one idea

Crypto-assets often move together, especially in sudden drops. Correlation is a measure of how closely two prices move in step. It is not constant, and it rises precisely when you would most want it to be low: when the market is falling in panic.

Total open risk

Add up the risk of all open positions. Example: two positions at 1% and one at 0.5% give 2.5%. Decide an upper limit in advance, for example 3%. Once it is reached, no new positions. When you raise a position's stop above entry, that position no longer carries a loss up to that stop, apart from gap risk. On the demo you move a stop by cancelling and placing a new order, so add up the risk again after every change.

Drawdown

Drawdown is the fall of an account from its highest balance so far. The important point: it is not measured from the start, but from the peak.

Write your drawdown rules in a calm period, not when the drawdown happens. An example, not a recommendation:

• Drawdown 5%: risk per order cut in half.
• Drawdown 10%: a week without new orders and a review of your journal.
• Drawdown 20%: back to the demo until you find out what has changed.
• Return to full risk only on a condition written down in advance, not by feeling.

Why the league penalizes drawdown

The League builds this into its points. The current, simplified formula starts from 50 points, adds discipline × 0.2, 2 points for each of the first 5 filled purchases, and the return capped at ±10, and subtracts the largest drawdown. The formula may change, but the idea stays.

It still holds: the demo is not real money. Calm with a virtual 10,000 does not mean calm with your own savings. So let your first real amount be so small that losing it changes nothing in your life.