Safest way to decide maximum lot size.. some thoughts?

Discussion in 'Risk Management' started by Oppz, Feb 11, 2021.

  1. Oppz



    I am running some FOREX EA, and am struggling to decide what method to use for deciding my lot size (leverage). We have some to chose from.. Kelly, Optimal f, Safe f, % of equity etc.. All with some pros and cons that have been discussed in this forum.

    As how, I am developing the principle for my trading in Amibroker, and I did realize yesterday that the built-in Monte Carlo simulation may be the "best key", as it can simulate the worst Drawdawn. That is, I can easily just do some manual backtesting with different leverage and just look at the (let's say) 95% probability that the max Drawdown is less than (let's say) 99%. Needless to say, this is for the part of my trading portfolio that I can risk.

    The leverage provided with kelly / optimal f etc are nearly always during the Monte Carlo simulation indicate a rather high probability for 100% drawdown.

    What are your thoughts about this?
    murray t turtle likes this.
  2. %%
    The younger you are/the more larger draWdoWns CAN make sense\Oppz
    Actually sounds like 100% dd is an account blowup/with slippage/auto liquidate.
    As long as you trade money you can lose, i dont worry about that !!
    But for my account/ one account blow up\ or actually did grind it down to nothing short term trading/once is enough.
    Most things except single stocks recover from any drawdown/ but i like some ETf dividends/not that i buy for dividends mainly.
    Good thing about a good FX dealer/you can never lose more than original amount:caution::caution::caution::caution::caution::caution::caution: I dont know why most FX trading systems use one contract/i do mostly ETFs + real estate..............................................................................................
  3. ironchef


    That is why Ed Thorp (and some of us) used fractional Kelly.

    But you have your priority backward. First establish your positive expectancy, then your bet size depends on your expectancy.
  4. Dr_Trade


    I always think of what position size should be associated for a trade. In-fact I found this more important than entry and exit points for your trade. I usually pick micro lots for trade and adjust this with my risk on pips.
    I hope this helps you! Happy forex trading.
  5. That’s definitely a good suggestion and worth trying. What confuses me the most is how to determine the position size. If anyone here can help.. ?!
  6. outhoe


    Set your risk limit per trade and the percentage or Dollar amount you’re willing to risk for each trade. Hypothetically speaking, if you have a trading account worth $10,000, you can risk $100 per trade if the limit you use is 1%. I’d suggest you risk only this percentage for better and safe trading.
  7. Determining the pip risk is also an option. It’s one thing if you set the same pip risk for each trade. But you can also try adjusting the stop loss according to the market conditions, your pip risk may vary too. This is one strategy that I use because when you know the pip risk; calculating position size is quite easy.
  8. Ytintod


    I’m not trading any currency with USD, does the pip value become risky?
  9. It does actually. But the broker you’re trading with must be having a forex stats page with tools to calculate the pip value of different currencies. My brokers for instance fxpro and fxview have good pip value calculator. I even tried using pepperstone’s calculator, but found it quite complicated. But then it’s your comfort and understanding.