Scaling up and the monthly review

The risk plan holds 1R fixed for a month. This lesson is about how 1R changes between months: up, on evidence, in small steps; down, on drawdown, immediately. And it is about the review that produces the evidence.

Scaling up: earn it with trades, not with a good week

The rule most traders break is raising size after a good week. A good week is five to twenty trades, which Module 3 showed is far too few to mean anything. Scaling should depend on trade count and on the log's numbers, not on how the month felt.

A simple, defensible ladder:

So a trader at 0.5% who meets the conditions after 40 trades goes to 0.75%, then to 1.0% after another 40 qualifying trades, and so on. From 0.5% to 1.5% takes at least 160 trades with good numbers throughout. For a swing trader that is more than a year, which is correct: size should lag skill, not lead it.

Note that a growing balance already increases dollar risk automatically at a fixed percentage. A $10,000 account at 1% risks $100; the same account at $13,000 risks $130 without any change to the plan. Scaling the percentage is a separate, slower decision.

Key idea: Raise 1R only after a fixed number of trades with positive expectancy and no rule breaks, in steps of 0.25 percentage points. Lower it the moment a drawdown threshold is hit.

Scaling down: fast and automatic

Drawdown rules go the other way and they trigger immediately, not at the review:

Halving 1R in a drawdown cuts the speed of the slide by half and, from Module 1, keeps you on the flat part of the recovery curve. It also has a psychological effect: the trades matter less, so tilt is less likely, so the drawdown is less likely to deepen for the wrong reasons.

The monthly review

First weekend of each month, with the log open. It takes an hour. Compute:

Then decide, using the ladder:

• 38 trades since the last change: not yet 40. Not eligible this month regardless of the other numbers.
• Expectancy +0.30R: passes.
• One rule break: fails.
• Drawdown 4.7%: passes.

Decision: 1R unchanged. Two more trades and a clean month, and the next review can raise it. Recompute line 1 of the plan (balance) and the dollar values of every other line, print the page again.

What the review is also for

The numbers per setup. If the log has a "setup" column, compute expectancy for each setup with 30 or more trades. The common finding is that one setup earns +0.5R and another earns −0.1R, and that dropping the second raises the overall number more than any amount of entry refinement.

The largest-loss line is a health check on stop discipline. If it is below −1.5R for any reason other than a gap, the stop rule was broken and it is a rule break, whatever the trade's outcome.

The costs line is a health check on style. If costs exceed about 0.15R per trade, the stops are too tight or the trading too frequent for the commission structure, and the fix is usually wider stops and fewer trades, not a new broker.

Try it: Run the twelve-line review on your last month of trades (or the twelve-trade sample from Module 3 if you have no log). Apply the ladder. Write down whether 1R changes, and why, in one sentence.

Recap

• Raise 1R only on evidence: 40+ trades, expectancy ≥ +0.2R after costs, no rule breaks, drawdown under 8%; then by 0.25 points, to a ceiling.
• Lower 1R immediately and automatically at drawdown thresholds; halve at 10%, pause at 15%.
• Review monthly: trades, win rate, average winner and loser, expectancy, total R, largest loss, longest streak, max drawdown, rule breaks, heat breaches, costs.
• Compute expectancy per setup and drop the leaks.
• Largest loss and costs per trade are the two lines that reveal broken discipline and unsuitable style.