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The Drawdown Governortrade smaller after losses, on a schedule

Evidence: WeakIntermediateRisk · Adaptive sizing

A written rule that cuts the risk percentage as the account falls from its high-water mark: down 5%, risk two thirds. Down 10%, risk a third. Down 15%, stop and review.

The honest accounting is mixed. If losses arrive randomly, this rule slows the recovery and adds nothing — that is simple arithmetic and it is not in dispute. What it protects against is the case where a losing run is not random: a strategy that has stopped working, a market regime that has changed, or a trader who has.

It is rated Weak because the statistical case is genuinely thin. It is included because that third case is common and the rule is one of the few things that limits the damage.

This is a sizing rule, not a trade. It sits on top of whatever entries you run, and its effect is on the shape of the equity curve rather than on whether any individual trade wins.

Applies to
Discretionary accounts and any system without an independent health check
Timeframe
Any · measured daily from the equity high-water mark
The ladder
−5% → two thirds size · −10% → one third · −15% → flat and review
Restoring size
Only on new equity highs, or after a written review — never because it feels better
Tools
Equity high-water mark · current balance · a written ladder agreed in advance

Valid setup

RK-05 · THE DRAWDOWN GOVERNOR — ACCOUNT EQUITY the ladder written in advance, measured from the equity high-water mark EQUITY 97.4 101.3 105.3 109.2 113.2 117.1 121.1 FULL SIZE −5% → TWO THIRDS SIZE −10% → ONE THIRD SIZE RESTORED IN STEPS, ONLY ON NEW HIGHS HIGH-WATER MARK — everything is measured from here −5% rung −10% rung −15% — flat, and a written review 1 2 3 4 118.0 112.1 106.2 100.3 ① New high — the mark everything is measured from ② First rung: size cut to two thirds, mechanically ③ The ladder was written BEFORE any of this ④ Bottom rung would stop trading entirely ⑤ Size restored only on new highs, in the same steps ⑥ This slows recovery. That is the cost, and it is real

Exact rules

When it applies

  • Write the ladder down before the drawdown, not during it. A rule invented at −8% is a mood.
  • Measure from the equity high-water mark, on closed trades, at the daily close.
  • Apply the reduction to the risk percentage, which flows through to every position size automatically.
  • At the bottom rung, stop trading and review — the point of that rung is to force the question of whether the strategy still works, and the answer is sometimes yes.

The risk cap

  • The per-trade stop is unchanged; only the size moves.
  • Do not combine this with a rule that increases size after wins. Together they produce a strategy that is largest at the top and smallest at the bottom, which is the worst possible shape.
  • Restore size in the same steps, and only on new equity highs or after a completed review.

Sizing and review

  • Keep a record of every time the governor fired and what happened next. After a dozen instances you will know whether it is helping your account or taxing it.
  • If the review at the bottom rung finds nothing wrong with the strategy, restoring full size is the correct decision and it will feel like the wrong one.
  • The governor's real function is to buy time for that review to happen at all.

Build The Drawdown Governor

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Trading carries risk and most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade. The chart is an illustration of the rules on constructed candles — it is not a record of a trade and not a backtest.