A total quantity of risk allocated across strategies, sectors or time periods, spent deliberately rather than consumed by accident.
Budgeting reframes risk as a finite resource. If the book may carry 6% of max-open-risk, that 6% is allocated - perhaps 3% to the core strategy, 2% to swing positions, 1% to experiments - rather than filled by whichever ideas happened to appear first.
Allocation should follow evidence. A strategy with 400 trades of recorded history and a stable expectancy earns more budget than one with 30 trades; a new idea gets a deliberately small allocation until it has a sample. This is also how you run experiments without betting the account on them.
Review the budget on a schedule, not after every loss. Reallocating in response to the last week's results is performance-chasing at the portfolio level, and it reliably moves capital toward whatever has just finished working.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Expectancy: the average trade. Forty trades sorted by outcome: 24 small losses and 16 larger wins. Weighting each side by how often it happens gives the average result per trade, marked here by the dashed line at +$120.
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