🛡️ Multi-Layer Risk Architecture
Defense-in-depth risk management across portfolio, strategy, and position levels
Portfolio Level
Top-level portfolio constraints
Max Drawdown Trigger
All positions liquidated if portfolio drawdown exceeds 15% from peak
Daily Loss Limit
Trading halted for remainder of session if daily P&L drops below -3%
Cash Reserve
Permanent cash buffer for opportunistic deployment during dislocations
Strategy Correlation
Pairwise correlation between active strategies monitored and capped
Strategy Level
Per-strategy risk controls
Strategy Max Drawdown
Individual strategy auto-paused for 2 weeks if drawdown exceeds 10%
Minimum Sharpe Ratio
Strategy must maintain rolling 3-month Sharpe above 0.5 to remain active
Win Rate Floor
Strategy flagged for review if rolling 30-trade win rate drops below 40%
Position Level
Individual trade risk management
Max Position Size
No single position exceeds 5% of total portfolio value
Kelly Criterion Sizing
Half-Kelly fraction applied to optimal size — maximizes growth while limiting ruin probability
ATR-Based Stops
Stop losses set at 2x ATR(14) — automatically widens in volatile markets, tightens in calm markets
Circuit Breaker System
Automatic emergency protocols
Complete system shutdown — all open positions evaluated for immediate close
Suspend new entries, tighten all stops to 1x ATR, activate tail hedges
Bid-ask spread > 3x normal triggers position reduction and limit-order-only mode
Cross-strategy correlation > 0.8 triggers 50% position reduction across all strategies
Drawdown Recovery Protocol
Graduated risk reduction
Black Swan Protection
Tail risk mitigation
Permanent allocation to out-of-the-money protective puts (5–10 delta, 30–60 DTE) on QQQ and SPY. Cost: approximately 0.5–1% of portfolio annually. Purpose: provide convex payoff during extreme tail events that overwhelm normal risk controls.
Automatic deleveraging algorithm monitors real-time VaR and triggers progressive position reduction when 1-day 99% VaR exceeds 3% of portfolio. This provides systematic protection against the "slow bleed" scenarios that circuit breakers may not catch.