I trade a system that is always in the market (long or short) with reversal points that change daily and weekly (depending on which market) with market volatility. Does anyone have any thoughts on how to determine proper position size with this constantly fluctuating amount of risk? Daily trades last just under 3 days on average and weekly trades last just under 3 weeks on average. Thanks much for any help!!!
Thanks for the insight Quant........(yah) Perhaps you have no desire to take something that works and make it better with some refinements, but I do. "Systems" can be made better. I have had great luck in discussing ideas with other traders and sparking new ways of looking at challenges and possible solutions. All the best to you Quant!
I think quant-not was merely saying that without details on drawdowns vs. expectancy there's no possible way to solve your dilemma.
Hey Pa(b)st. Thanks for the response....and perhaps I am not asking the right question. But, I am always in the market and the amount of risk varies from day to day or week to week due to the reversal points. With, say, a one contract position you make $X. How do you provide or prepare for the worst case and still maximize gains? Does this help?
Investigating fixed fractional position sizing might help you. You can certainly read about it here (use the search feature) or search the web. Basically you decide how much % of capital you want to risk on each trade and determine the position size by dividing your risk amount by the single contract risk for each trade. Trades with a higher initial risk result in smaller position sizes and trades with a smaller initial risk result in larger position sizes. Your risk per trade as a percentage of account remains the same. Hope it helps.
Risk varies from day to day due to changes in volatility. You need to determine how your system performs in both low volatility and high volatility trading conditions. Once you determine statistically the performance of your system when volatility changes... You can then determine when to increase or decrease your position size when volatility levels change. Hausse suggestion is good too. With that said and using a little of his suggestion to show an example via volatility analysis... Lets pretend you determine your performance decrease during high volatility conditions and increases during low volatility conditions. Trades during with higher volatility conditions result in smaller position sizes and trades with a lower volatility result in larger position sizes. Your risk per trade essentially remains the same. However, if your system performance increases during high volatility trading conditions and decrease during low volatility trading conditions... Trades during a higher volatility conditions result in larger position sizes and trades with a lower volatility result in smaller position sizes. Your risk per trade essentially remains the same. Mark
i would look at what the 3rd quartile "position drawdown" is in terms of cash and then look at the same for string of losses and then bet the farm. that is if you have a robust systems and you feel good about it. that is that its not some opto junk. mb