Risk

Risk management

The strategy is designed to survive before it is designed to win. Risk controls are hard-coded, not discretionary. Every position, portfolio, and daily limit is enforced before an order reaches the market.

Position sizing

Volatility-targeted exposure

Position size is set so that a one-standard-deviation adverse move against the position costs 1% of account equity. This normalises risk across assets and regimes.

risk_per_trade = 0.01 * account_equity
atr_20 = average_true_range(high, low, close, 20)
position_shares = risk_per_trade / atr_20
notional = position_shares * last_close

The notional is then scaled by the regime multiplier and the confirmation score. A strong confirmation in a clear trend can increase size by up to 50%. A neutral regime reduces size by 50%.

Condition	Size multiplier
Confirmation score < 0.6	0.0 (do not trade)
Confirmation score 0.6 - 0.8	1.0x
Confirmation score > 0.8	1.5x
Neutral regime	0.5x
Volatility percentile > 80	0.5x

Stops

Exit rules

Every trade exits under one of four conditions. The first trigger wins.

Hard stop

2x ATR from entry in the adverse direction. This equates to roughly 2% of equity at risk, capped at the 1% per-trade limit after sizing.

Trailing stop

In a trending regime, trail the stop at 1.5x ATR once the position moves 1x ATR in profit. Locks in gains while allowing trend continuation.

Time stop

If neither profit nor loss exceeds 0.5x ATR within 10 sessions, exit at the next close. Avoid capital stagnation.

Regime flip

If the regime changes to the opposite condition for two consecutive sessions, exit the position immediately. Do not fight the new environment.

Portfolio

Portfolio-level limits

Limit	Threshold	Action
Max gross exposure	150% of NAV	Block new entries that would exceed cap.
Max net exposure	100% of NAV	Long/flat baseline; short overlays limited to 50%.
Max single name	15% of NAV	Hard cap regardless of signal strength.
Max sector concentration	40% of NAV	Force diversification across sectors.
Max correlated pairs	30% of NAV	Reduce size when multiple signals share > 0.7 correlation.

Circuit breakers

Daily halt rules

Daily drawdown halt: If portfolio NAV falls 5% from the previous day's close, all new position entries are suspended. Existing positions remain subject to their individual stops and trailing stops.

Volatility spike halt: If VIX or an equivalent realised volatility index rises more than 30% intraday, reduce gross exposure by 50% and suspend trend-breakout entries.

Correlation breakdown: If average pairwise correlation across the portfolio spikes above 0.6, reduce active exposure by 30% until correlations normalise.

Monitoring

Risk dashboard metrics

The live risk dashboard updates every minute during market hours. It tracks the following metrics and alerts when any limit reaches 80% of its threshold.

Metric	Frequency
Portfolio NAV and drawdown	Real time
Gross / net / single-name exposure	Real time
Heat map of open risk per position	Every 15 minutes
Volatility regime and correlation	Every 30 minutes
TradeDNA confirmation score drift	Every 5 minutes