DD-Triggered Risk Scaling: The Module That Keeps You in the Game
Four-zone adaptive risk protocol scaling from 0.30% down to 0.15% based on drawdown severity, achieving 0.08% FTMO breach probability.
The Four Zones
S40 defines four drawdown zones that govern position sizing. NORMAL (0-4% DD) trades at 0.30% risk per trade. CAUTION (4-6%) drops to 0.25%. DANGER (6-8%) reduces to 0.20%. CRITICAL (8-10%) floors at 0.15%. The transitions are automatic and based on current equity relative to high-water mark.
The zone boundaries were optimized through Monte Carlo simulation targeting minimum breach probability while maximizing expected monthly return. The current boundaries represent the Pareto-optimal configuration: no other boundary set achieves lower breach probability without sacrificing more than 0.2% monthly return.
Why Start at Full Risk
Some risk management approaches start conservative and scale up. S40 starts at full risk (0.30%) and scales down. The reasoning is mathematical: with a 59.2% win rate and 1.60 profit factor, the expected value of every trade is positive. Starting conservative means you are voluntarily leaving edge unexploited during the most favorable conditions (no drawdown, full confidence).
The scale-down-only approach means the system is always running at the highest appropriate risk level given current drawdown. This maximizes expected return while providing automatic protection when drawdown increases. The result is the projected 4.35% monthly return at full risk with the safety net of reduced risk during adverse periods.
The 0.08% Number
Monte Carlo simulation with 5,000+ paths using block bootstrap with regime conditioning produced a 0.08% probability of breaching FTMO's 10% total drawdown limit. This means that across 5,000 simulated trading years, only 4 would result in a breach. The number is so low because the system has multiple layers of protection: S40's risk scaling, S07's circuit breaker, S34's equity curve trading, and S06's anti-Martingale sizing. Each layer reduces breach probability independently. Together, they make breach a near-impossibility. The 0.08% residual risk comes primarily from black swan events (unprecedented correlation spikes, flash crashes, or extended regime changes) that are present in the Monte Carlo sampling but rare in the historical data.