For those of you who followed Talon's thread, toward the end there was some interest in risk management. I thought I might try to start a thread to walk through the process of getting multiple models working together - with the hopes that guys like Talon, Mike, etc. will continue their generosity and weigh in if they have time. Before one can start comparing returns between models (say on a monthly basis), some decisions need to be made per model on: 1. Maximum # of open positions allowed 2. Position sizing as a result of step 1 Factors that need to be considered when determining the above are: 1. % Exposure - assuming risk management is in order, want to have as much capital working as possible 2. Effect of above decisions on system performance (profit factor, expectancy, cost of commissions, etc.) For example, I have a system that trades much more often during high volatility periods. Not only does it trade more frequently during those times, but the average trade pnl in % terms is higher, profit factor higher, return/DD higher. Also, during high volatility periods, the trades that signal after several trades are already open do even better. Having said all that, the system still performs acceptably during normal volatility periods. Here's what I think are a few options for dealing with this: A. Use smaller position sizing so that there's room to take all or most of the signals during high volatility when the system is performing at its best (i.e. better risk adjusted returns). The drawback to this approach is that a majority of the time when only a small number of signals are generated, the amount of exposure will be very low - not an efficient use of capital. B. Significantly reduce the number of open positions allowed to improve exposure levels (and thereby increase per trade position size). Risk adjusted performance will suffer but the level of income will increase. C. Get creative and adjust position sizes according to the VIX or something like that (higher vol -> smaller positions and vice versa). Best of both worlds? [I should also mention that this system does not use stops and I couldn't see putting more than 4-5% of the account into any one position regardless of the methodology. Curious to hear if anyone thinks that's too aggressive? ] Anyway, I think with a few properly developed models together this is the first in a series of questions that needs to be addressed when looking to combine them. I am clearly looking for help here, but I would imagine that hearing opinions on the issues that will (hopefully) be discussed in this thread will be helpful to others as well. Anyone have thoughts on A,B, or C above? Or a different approach entirely? Thanks for reading and appreciate any input. ---------------------------------------------------------------- I decided to attach some numbers to demonstrate the effect. To generate the results, I set the initial equity to a ballpark figure that I think will get allocated to the model (wanted to put a halfway realistic dollar amount here so that the effects of commissions will be accounted for as position sizes get smaller). Position size for each trade is simply = Initial Equity / Max # of Positions.