Like HolyGrail, my position size is based on risk. I also don't look at returns in relation to position size; I look at returns in relation to risk.
It all depends on time frame due to risk size. If I am a daytrader then I can use more positions at a time with a smaller stop. If I am a position trader (which I am) , then I use smaller number of positions with a wider stop. The line in the sand is 2 percent of total liquid net worth , no matter what . If your risk is outside those parameters, then the trade must be bypassed. It is much more possible to have a trade go 8 or 9 to 1 Reward to Risk in position trading than it is in daytrading. That's one of the reasons why I prefer position trading. (Less commission too). Less(Activity) is more--hard for a newbie to understand.
Simplistically, set a maximum position aligned to those precautions which ensure that any unexpected loss cannot damage your intended program of capital accumulation (ie continuously adding net profit or net gain). First the background assumption is an accurate methodology. Consider an example for day trading 1. Max stake (ie bet or position size) at any one time set to .02% of trading capital inclusive of margin. 2. No overnight or longer holds. 3. Have planned position sizing tactics for your methodology up to your allowed max - never larger.
My system calculates my position size based on my cash balance. I use leverage in Retail Spot Forex with a max of 50:1. I have calculated the ATR of the "thing" and I have based scaling approaches into tiers. please excuse the vagueness, as I cannot expose the details of how I trade According to "where" I enter in at and at which "time of the session" I enter in at will determine a rank within a table on my spreadsheet. So I base position size on a max that I would expose myself with in relation to my present balance at the beginning of the trade and I also rank the set up for an accelerated exposure model. I trade without stops, but use a hedged approach with my correlation models. I am saying too much here So I had trouble answering this poll. I have researched this subject of money management and position sizing a lot. I have concluded for myself that the only way to increase the performance of a system is to rank the set ups and base your bet size on that...There is no other way to place the progression "in a can" as the market has no idea what your condition is. So your position sizing needs to be "market based" and "instrument dependent". Explore ranges, ATR's and pip or tick volatility times to further your research on the subject. No PM's please. Michael B.
I don't agree with 50 to 1 whether daytrading or position trading. I think that is unbelievably poor judgement. Sorry, it's just the way I feel. Note: If that 50 to 1 is only in the trading account and is actually more like 3 to 1 when compared to total liquid net worth, then I might be able to see it.
Each set up is a system in itself, if you treat it as such, you can determine the optimal amount to bet based upon that set up.
You did not read the word hedged in paragraph 4...sorry my post was long...I count the total exposure using the hedge too..so I tame the volatility at the higher leverage...but it still counts as leverage used! The platform and account summary fields are dynamic in the tools I use, so I can adjust on the fly from the 2 second dynamic summaries reported to me.
The first rule is to never globalize. Those of us who understand our trading strategy and leverage, can use 50:1 or more and only risk a loss of 10% on our accounts, and that's our a worse case scenario that happens once in 18 months or so. You pay a heavy price for being too conservative. Work on stretching your "risk" muscle a little very day, that's my general philosophy towards trading.