In the world of growth equity, the difference between a fund manager and a gambler isn't just the assets they trade, it’s how they behave when they’re wrong. Most traders fall into the trap of the Martingale strategy, doubling down on a loser to "get back to even" quickly. It’s a siren song that sounds like logic but functions like a suicide pact for your capital. At Worch Capital, we take the opposite approach. We use a 1% Max Risk Rule combined with an Anti, Martingale strategy. Here is what that looks like in the trenches.
The 1% Rule: Your Ultimate Safety Net
The baseline is simple, we never risk more than 1% of total equity on a single trade. If the fund is at $1M, the maximum loss on any one position is $10,000. However, "risking 1%" does not mean "investing 1%." If our stop, loss is 5% away from our entry, we can put 20% of the portfolio into that name. If the stop is 10% away, we only put in 10%. The position size changes, but the risk to the total equity stays fixed.
The Anti, Martingale Edge: Scaling with Success
Most traders increase their risk when they are losing, trying to "revenge trade," and decrease their risk when they are winning, out of fear of losing their gains. We do the exact opposite. When trading poorly, if a string of losses occurs, we don't just "try harder," we continually reduce position sizes. We might drop our risk from 1% per trade to 0.50% or even 0.25%. This slows the "bleeding" and preserves capital during choppy or trendless markets. Only when we start getting "traction," meaning our setups are actually hitting targets, do we increase our risk back to the 1% baseline or begin "pyramiding" into winning positions.
Psychology: Why This is Hard to Do
Human nature hates the Anti, Martingale strategy. It feels "slow" to recover from a drawdown because your positions are smaller when you first start winning again. But this is exactly why it works. It forces you to earn the right to trade larger. By the time you are back to your maximum position sizes, the market has already proven it is in a healthy environment for your strategy. You aren't guessing the market has turned, you are following the evidence of your own P&L.
The Bottom Line
Cash is a position, and patience is a trade. In a long, short fund, the goal isn't just to make money, it's to stay in the game long enough to be there for the easy money. By scaling down during losing streaks and only getting aggressive during "hot" streaks, we ensure that a temporary drawdown never becomes a permanent disaster.