Risk Management
Risk Controls Are the Foundation, Not a Feature
AlgoQuantFoundry treats risk management as a first-class design constraint. Every strategy is engineered to fail safely — not to maximise returns at any cost.
Key Risk Parameters
Principles
Six Core Risk Management Principles
Capital Preservation First
The primary objective of risk management is to keep the research base intact. No return target justifies breaching drawdown limits. A depleted account cannot continue research.
Maximum per-trade risk: 1.5% of equity
Daily loss limit: 3% of equity
Monthly drawdown halt: 10% of equity
Defined Risk Per Trade
Every trade entered has a pre-set maximum loss expressed as a percentage of account equity. Stop-loss orders are placed before entry and are non-negotiable.
ST-TSL: Fixed 1% stop-loss, 2% target
ST-Base: ATR-based trailing stop
ST-Multi: Dual-signal invalidation stop
Volatility-Adjusted Position Sizing
Position size is not fixed in dollar terms — it is calculated from the account equity, current volatility (ATR), and the maximum acceptable risk per trade.
Position Size = Risk Amount / (ATR × Contract Value)
ATR-scaled to prevent oversizing in high-vol regimes
Kelly fraction applied as an upper constraint
Drawdown Circuit Breakers
Automated halts trigger at predefined drawdown thresholds. When triggered, no new positions are opened until a mandatory review period has elapsed.
Level 1 (5% DD): Reduce position sizes by 50%
Level 2 (8% DD): Suspend new entries, manage existing
Level 3 (10% DD): Full halt, mandatory review required
Market Regime Awareness
Trend-following strategies like Supertrend perform poorly in ranging, low-volatility markets. The platform tracks regime indicators to filter signals in unfavourable conditions.
ADX filter: Only trade when ADX > 20
Volatility filter: Skip trades in sub-ATR-threshold ranges
News/event blackout windows (future capability)
No Martingale or Averaging Down
Adding to a losing position to reduce average entry price (averaging down) is explicitly prohibited in all strategy configurations. Losses are accepted; they are not compounded.
One position per strategy per instrument at a time
No pyramiding into losing trades
Profit pyramiding only with trailing stop adjustment
Position Sizing
How Position Size Is Calculated
The Risk-Per-Trade Model
Define Maximum Risk
Risk Amount = Account Equity × Max Risk %
$100,000 × 1.5% = $1,500 maximum loss per trade
Calculate Stop Distance
Stop Distance = Entry Price × Stop %
$30.00 × 1.0% = $0.30 per ounce stop distance
Determine Contract Position
Contracts = Risk Amount / (Stop Distance × Contract Size)
$1,500 / ($0.30 × 5,000 oz) = 1 contract
Apply ATR Scaling
Adjusted Size = Base Size × (Normalised ATR Factor)
Reduce if ATR > 2× baseline; increase only within Kelly bound
Risk-First Strategy Research
Every strategy in the platform is evaluated with these risk controls applied. See the results in the research dashboard.