Sizing for the gap, not the stop

Lesson 2's arithmetic took the stop distance on faith. Lesson 4 showed the stop is a fiction across a gap. This lesson re-runs the same division with the honest input.

Same machine, different distance

Nothing new is needed: cash at risk, divided by what a distance costs per contract, floored. The only change is the distance - not where the stop sits, but how far the market might jump across it. For a position meeting an inventory report, that is a report-sized move; the worked example uses $4.00 of WTI, a plausible bad surprise rather than a catastrophe. Divide by that and the size that emerges is the one whose worst scheduled outcome stays inside the budget.

The answer is usually smaller. Sometimes it is none.

Run the example: the same account that held one contract at the $1.50 stop holds zero at the $4.00 gap, in every currency. That zero is not the method breaking - it is the method telling the truth the stop-sized number concealed. A full-size commodity contract through a report is a risk most retail accounts cannot afford at an honest reckoning, which is precisely why lesson 4 offered the alternative no other gap allows: be flat at the minute that is printed on the calendar.

The decision this forces, in writing

• Size to the stop and stand flat through events: the budget holds because the gap is never met.
• Size to the gap and hold through events: smaller or zero size, budget honest throughout.
• Size to the stop and hold through events anyway: the actual risk is the gap-sized one, whatever the plan says - so write the real number down, or the plan is fiction.

The pairs track's stop lesson said a stop is an instruction to transact - and overnight there is nothing to transact against. Commodities sharpen it: here, the moment there will be nothing to transact against is published in advance. Sizing that ignores a published fact is not risk management. It is hope with a spreadsheet.