Phase 2 introduction

What this phase establishes

“BTC will rise” is an opinion. “Under this condition, BTC has a 55% chance of rising 3% and a 45% chance of falling 2%” is a calculable decision.

This phase begins with probability, then expectancy, win rate and payoff ratio, variance and drawdown, and ends with the two things determining whether you survive: position sizing and risk of ruin.

Six chapters

Phase project: Risk Calculator

Use the calculator below to produce a copyable simulated risk report after completing six chapters. No registration or orders are needed. Editing inputs does not automatically save them. After generating a valid report, copy it or explicitly save a local snapshot. Refreshing clears unsaved inputs.

Use hypothetical numbers only; no registration or orders. Risk percentage is the budget before stop execution; fees are deducted separately. Edits remain in this page's memory. After calculating, explicitly save a local snapshot or copy the report.

Account equity (USD)Pre-stop risk per trade (%)Entry priceStop priceAssumed win rate (%)Average reward-to-riskTotal cost per trade (R)Number of simulated tradesHalt threshold: remaining starting capital (%)

Calculate risk report

Complete the assumptions and calculate. Invalid inputs will not be replaced by old results.

Inputs:

• Account size and the fraction you are willing to risk per trade
• Entry and stop prices
• Assumed win rate, average payoff ratio, and total cost per trade (R)
• Number of trades and shutdown threshold (remaining fraction of initial capital)

Outputs:

• Position quantity, notional value, and account exposure implied by your assumptions—not live position advice
• The trade's expectancy
• Account balance after 5 and 10 consecutive losses
• The fraction of 1,000 simulated paths that touched the shutdown threshold during the observation period, and the drawdown distribution

Submission and self-check

1. Keep the default teaching assumptions initially; verify planned risk, quantity, and results including costs.
2. Change only the risk fraction and save a second report. Then add costs separately and save a third. Recalculate after each change; reports include input snapshots and seeds.
3. State the evidence, sample dates, and invalidation conditions behind probability and payoff estimates. Explicitly label unknowns.
4. Add a shutdown rule: what to do after a breach, what to inspect, and what evidence permits restarting.

Distinguish expectancy from a single outcome, planned stops from guaranteed losses, and peak-to-trough drawdown from an initial-capital shutdown threshold. Completion requires recalculating the default quantity, explaining cost changes, distinguishing threshold touches from final profit/loss, and identifying omitted gap and dependence risks. If automatic copying is unavailable, copy manually from the report text box.

Knowledge nodes

Self-test before skipping