Money Management and Dynamic Intraday Position sizing

Discussion in 'Risk Management' started by cornholetrading, Jun 10, 2005.

  1. I have begun to realize more and more how much position sizing can effect your results. I am trading at a futures trading office that promotes cutting your postion size when you are trading poorly or losing and moving it back up as you are trading better. This is in a non automated environment so there is plenty of discretion involved for the trader to figure out their trade signals and money management. However the difficult part is to come up with the best solution for dynamic position sizing while trading intraday. From what I hear what the poor money management strategy use to be was the they traded small during the day and sized up for the somewhat "free money" news events. Anyway that for the most part is over with.

    So I guess the trick becomes how to adjust your size during the day. For instance if a trader starts off the day trading 10's to me it does not make sense to cut this size in half after your first loss or two but some traders do that. To me that seems like you are trying to predict when your winning trades are going to occur. Say you have 60% win ration but out of your first 5 trades you have no idea if the first 2 are going to be winners or losers. If you cut your size in half you are not even giving your trading strategy and odds a chance to work for you because by the time you come to the winning trades you no longer have the size to make back what you lost.

    So how are others going about adjusting their size up and down during the day depending on winning or losing trades? Do you just maintain the same size and have a cut off point for the day if you hit it? IF you start sizing down at some point what gets you to start raising it back up so you can actually take advantage of trading opportunities to get in the black rather then to just get even?
  2. Ryan Jones book "the trading game" discusses position size as the main theme of his book. His strategy is called fixed ratio money management, which in stocks and futures, blows away fixed fractional, so you scale up contracts on good trades and scale down on bad trades.

    Obviously he spends the whole book describing how to do it.
  3. Thanks for the recommendation. SO I take it that is what you are using?
  4. twalker


  5. cornhole,

    Good points as usual. I enjoy your posts and chuckle at your handle often.

    In my Journal here, the system that I trade and wrote is producing above average, so I cut back...You can see the demonstration of this. I am anticipating a test of the resolve of the system because of its equity curve.

    I believe there is validity to anticipating the upcoming "strings" of cyclical wins...or even better an anticipation of price reversals in directional trades systems such as mine.

    So I guess it depends on how you trade....

    Michael B.
  6. twalker


    re-reading your original post see Ryans book and my WWW are useless as you are intraday scalping.
    It is best to keep your clip sizes the same. Actually over time as you are no doubt aware size tends to increase anyway as confidence grows. The type of progress I have seen with funded guys who start on the program goes something like 2/5/10/30/50/100/200+ clip size. That is why PnL growth overtime increases substantially for those who "get it".
    If you reduce after a couple of losses it shows a lack of confidence in yourself and faith in your method. Actually better to go home than do that. If these people are funded I think they are being managed badly.
  7. In regards to your post I was talking about changing trading size intraday. The size increase you mentioned above is that of someone moving up their default trading size over time. What I thought would be interesting to discuss in this thread is how one adjusts their size intraday if they do it at all as most books on the subject seem to be talking about longer term positions. However intraday a trader is usually making a lot more trades and trading decisions. So if you start the day off trading 100 lots how does one (if at all) raise or lower their size depending on how they are trading that day. Obviously a trader needs some ultimate cut off point for the day if things are not going right to prevent the blowout kind of days and to make sure over some longer time frame that your losing days are not double your winning days. I think it is wise, especially for a highly discretionary trader, to cut their size at some point if they are not seeing things right, but the question is at what point do you cut, by how much, and when do you start raising it back up. I guess on the other hand a trader could just trade their fullsize until they hit their ultimate stop for the day instead of dynamically adjusting their size throughout the day. Oh what I should have mentioned early to make the subject easier to discuss is that the assumption is that the trader is trading the same product all day long like the eminis, bonds, currency, ect.
  8. I scalp, so my risk management is not automated but is strictly followed. As I have said before on various threads, we always start small (eg. 2-3 lots and click many times :) ) and build a base for the morning. This minimizes my risk and provides me with a feel of the kind of flow the day will have (lately... no flow at all in the FDAX). Once I have a base (20 pts or so in the FDAX - approx. US$500), I usually turn up the default size to 5's.

    Just to clarify, I scale in and out. Hence, when I say trade 2-3 lots, this means that I'm averaging about 6 to 9 contracts to start.

    If I take 3 losses in a row, I would cut my size in 1/2. When I go red, I cut in 1/2 again. Once I'm red, 15 pts or more, I'm trading 1-lots.

    The purpose of the 1-lots is not that I would make a fortune trading them. Rather, I have poor flow and am not psychologically there. I know I need to stay in the game, but the probability is that I will take more losses, so I limit the losses until I get a flow going. Once I have a winning streak, I double again until I'm green and then get back up to double that but this will be the cap for the day. On days like these, I usually will have burned through at least 800 to 1000 contracts to get back up so there is no sense in trading more size. I just look to be net positive or up small.

    I hope that makes sense.
  9. Thanks for the post. I have some questions for you. First when you say you are scaling in and out, are you only scaling in on the way up for a long position or are you averaging down on your position within a defined range?

    SO it sounds like your style is trading 100's of times a day. Why do you cut so drastically after 3 losses in a row? Above you said that once you get a winning streak going you raise your size back up. What do you consider a winning streak - 3 trades green in a row or is this not as defined as when you cut your size?

    My style is based around trading far less (5-15 times a day), but would seem to be less based on feel as I think scalpers have to be, although there are elements of this feel in my trading.
  10. =======
    Would consider after study, you question relevant [5 trades/day]even though i close some of my trades out at end of day-but not most of them.

    Even though i have losing streaks, which is one of the many reasons to ''cut back quick, cut back drastic;;
    consider experienced swing -position profitable trading to be the norm. When it is not; cut back quick/drastic

    Usually cut back more severe than Futurestraders 71;
    usually paper trade after 2 losses because;

    1] Many good reasons including its a way to cut losses short;
    especially most of trading is 7 or less markets, so you get to know them ,more or less.

    2]Even though my wins trend , losses do too-cut back to paper trade quick.

    3] Reguardless of my hit rate , it varies,losses do trend also.
    Cut back to paper trading quick, losses usually mean it a sideways trend , in which case i want to be in a trending market.

    3]I am a sensitive person like mr & mrs E/Savant and ;
    Like Rich Dennis /Schwager said ''when your head is in the mixer, get out!!!''

    Figure thats an excellant way to apply that;
    wisdom is profitable to direct.

    #10     Jun 13, 2005