Position Sizing

Discussion in 'Risk Management' started by Mike805, May 7, 2009.

  1. Hello All,

    This is a general question aimed at discussing what the "best" position sizing techniques are currently utlized in practice.

    Lets start with the attached system stats and a $5k/contract margin requirement (max. 2 contracts open at any given time initially i.e. $10k starting account size), how would you set position sizing for this proposed system going forward?

    *Risk of ruin should be virtually negligible and max. drawdown must be < 50%.

    *If you need MAE and MFE info let me know and I can provide it.

    Thanks in advance,
  2. joesan


    Is this meant to be an advertisement of the strategy ?

    It is such a perfect system that any pp algos will surely do the job of further boost the already spetacular performance.
  3. Hi Mike,

    The question is very difficult to answer. There were two books written by Ralph Vince trying to answer in detail. I can only recommend reading this book. It will give you a lot of insights and point to issues which you never thought they could be important to answer your question.

    The books are:
    The handbook of Portfolio Mathematics (ISBN: 978-0-471-75768-9)
    The New Money Management (ISBN: 0-471-04307-9)

    Sorry to write this complicated, but for me English reading is much easier than writing ;)

  4. joesan


    Suggest start with fixed ratio method, which is ideal for smaller account,especially with this stellar trading strategy, then switch to fixed fractional at some proint, when the account has been greatly increased in size
  5. This advice by joesan will be a light bulb moment for some here at ET.

  6. I don't think anyone has to buy any books to read about position sizing. There is plenty of free material around:

    1. Excellent article by Trader Mike

    2. Michael R. Bryant on position sizing

    3. Fixed fractional position sizing

    4. %Kelly clarified here

    There is no evidence optimal methods are much better than risk percent based on current bankroll because the latter method adapts to higher equity levels by increasing the dollar risk while percentage risk remains under control.
  7. Yes, you do not need to buy books for information on position sizing. But they work for me any I only want to share my experience with them. If you only want to know what the best position size is, you could go with some information for these articles. If you want to have some more background – for example why Kelly is not the first choice to work with trading strategies – you can read these books (but you do not have to). There maybe also articles for that issue on the net, but I like to have the information in a book.
  8. Hi joesan,

    No, this is not an advertisment. This is a system I've recently developed and currently testing live with a small account. I'm going to give it 3 months or $7500 max DD (whichever comes first) before I commit decent capital. Prior to fully funding this system, I'd like to test a variety of position sizing models. I have a general idea of what I'd like to implement, but, I'm open to suggestions given the historical behavior of this particular system.

  9. Thanks for those resources Daniel. I'll take a look at them.

  10. When would you make the switch to fixed fractional and at what point would you start increasing position size given fixed ratio?

    FYI this system trades ES and the 30 year.
    #10     May 8, 2009