Position Sizing edge

Discussion in 'Risk Management' started by oilfxpro, Jun 11, 2011.

  1. What position sizing formula would give an edge to a 45 % plus hit rate system?

    There is a system with a 20 pip stop and 22 pip target , it give a 48.7 % hit rate .The average number of annual trades is 6,250 (5 per day *5 currencies/instruments) ,

    There is random distribution of profits and losses.How can I increase lot sizes after losses?

    Start with 1 lot and increase it after 200 point draw down to 2 lots, and to 3 lots after a 400 pip draw down .After a good profitable run and an increase in hit rate to 60 % approximately, revert position size to 1 lot .

    Is it a good strategy?What are the problems?

    As an example 25 trades in one week were done on 1 instrument , the first 10 trades lost 200 pip (10*200), second 15 trades had 11 profits and 4 losses , net result is 102 pips nett profit.The original mm strategy would have produced a 38 pip loss, using single lots on all 25 trades.
  2. If you can't make money on 1 lot forget it.
  3. At some point you will encouter a period of time where you think you should bet high because you lost for a while and then you are going to continue to lose for another while (statistically, it will happen). Not all weeks or months will have the sweet %win %loss that you predict, therefore the numbers dont always add up. And then you will have a serious drawdown that will take a lot of time to recover, if you ever do.
  4. Assuming no serious slippage this yields a profit factor of 1.044.
  5. In a zero sum game which is a negative sum game after trading costs , where 95 % lose there is no desire to change the odds in trader's favour.In every sport different tactics and game plan can be used to win. In trading only use the plans of failures of the 95 % gamblers club.

    Trading is about probabilities , increasing the edge by unusual money management will increase the odds in trader's favour.Casinos increase their odds by placing limits on betters and only allowing games with edge in casino's favour, yet traders are encouraged to be betters with a negative edge.

    Most of the trading taught to retail traders is nothing more than gambling ,or betting on the form of the trend , betting red (short) or black (long) which is similar to betting on horses.Instead they should be taught trading probabilities , and trading systems with a money management edge.

    Is there any reason why a person who can make money with 1 lot should not use an additional edge?Can this not be applied to a 70 % hit rate system on standard lots ?It is an efficient market where edges are constantly eroded and lost.