Kosta Ouzas shows how 3x leverage on 80-90% of capital kills trading accounts when assets drop 5-10%, while sizing positions by power law deviations keeps you alive through drawdowns.
So scenario one, we have incorrect sizing. Trader A runs a bot on, let's say, 3x leverage, using 80 to 90% of their capital because they want maximum gains. But this does three things. Immediately, the liquidation line is going to rise aggressively, their margin of safety is going to shrink to almost zero, and a normal 5 to 10% move is going to become absolutely catastrophic. So when an asset like Bitcoin is going to pull back, as it always does, their entire system collapses. Not because the settings were bad and not because the entry was wrong, because the position sizing was much too fragile. So let's take a look at scenario two. The correct sizing. Trader B is going to use a fraction of their capital per entry and is going to size their position according to the power law deviations. This means they're going to have more breathing room, lower liquidation, and drawdowns that are absolutely survivable.
