Risk settings are risk appetite, not expected returns

By Otto Research 3 min read

Otto has three risk settings, Low, Medium and High, and a separate Prop mode. It is tempting to read them as three levels of return. They are not. They are three answers to one question: how large a drawdown are you prepared to sit through?

Each setting scales the whole portfolio. Every trade Otto takes is sized so that its stop loss represents a fixed fraction of the account, and the setting decides that fraction. Move from Low to High and every position gets larger in the same proportion, every winning trade earns more, every losing trade costs more, and the drawdowns, which are made of losing trades arriving together, grow in step. The strategies do not change. The markets do not change. Only the scale does.

That is why the honest description of a setting is its drawdown, not its return. A setting whose worst drawdown on the live record is one you would abandon halfway through is the wrong setting for you, whatever it returned, because you would leave at the bottom and miss the recovery. A setting whose worst drawdown you could hold is the right one, and its return is whatever the market pays for that patience.

The live accounts on Karnek run one at each setting, so the drawdowns are not a promise but a record. Read them, pick the setting whose worst month you could have held, and then leave the setting alone. Changing it after a good run or a bad one is the most common way an owner turns a working system into a losing one.

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