4Part I — The Money Warehouse: Foundations from Babylon
Chapter 4
Market asymmetry: how to limit losses and open the way to a large profit
Why you can be wrong on most decisions and still make money. Risk versus reward, position sizing and the first full application of Dirk's Pallet Test.
Dirk has a rule he's taught every forklift driver on our shift: you don't lift a pallet until you know how much it weighs, whether it's properly wrapped, whether the route is clear and where you'll put it down. Four questions. Five seconds. No accidents for years.
Dirkforeman
A bad driver only looks at the racking he's heading for. A good one looks at what will happen if the pallet starts to tilt.
Bartnarrator
So you plan for failure?
Dirkforeman
I plan to keep failure small. Success will plan itself.
Asymmetry in practice
Asymmetry means that the potential loss is limited in advance, while the potential profit is several times greater. If you risk 1 unit to gain 3, you can be wrong most of the time and still come out ahead.
Worked example
20 decisions, risk 1R, target 3R
- Winning decisions (35%)
- 7 × 3R = +21R
- Losing decisions (65%)
- 13 × 1R = −13R
- Final result
- +8R
With 1% of your capital at risk per decision, that means around +8% — even though you were wrong almost twice as often as you were right.
6 / 14 · Educational content, not investment advice.