Size

Discussion in 'Risk Management' started by EpiphanyTrading, Mar 7, 2010.

  1. EpiphanyTrading

    EpiphanyTrading ET Sponsor

    How big of a position should someone enter with? In the past, our partners have had a debate. One who uses Candle Stick charts said start small and reverse scale in then out. Another, Erik Kolodny likes to come up with an amount that is at the threshold of comfort, he enters into the position with just a little more.
     
  2. This is a provocative thought. Under no circumstances one should go above the "pain" threshold. Reduce the size by the 2x(amount of slippage) and 2x(commission).

    Even this is not the defining factor.
    One should have answers to these questions first:
    - the biggest loosing trade against you?
    - number of consecutive loosing trades?

    --
     
  3. The smallest possible, which, given your trade frequency, capital and historical drawdown, it will suffice that you minimize risk of ruin and at the same time maximize expected return.

    It is a non-linear optimization problem which, nevertheless, has some very trivial solutions for most people with average size capital that trade a few securities.

    For most people the optimal solution is to trade 0 size. That maximizes their expected return:)
     
  4. dts927

    dts927

    whatever you do please dont trade to the limit of your buying power just because you can. take into account the volume/volatility of the stock your entering and where your out is if your wrong.
     
  5. Get in the fast lane and put the pedal to the floor. That's how I do it.
     
  6. Three things have impact on a traders position size.

    * Respect the money management rules

    * Changes in volatility

    * Pyschological Thresholds

    Mark
     
  7. So true.
     
  8. 1% of capital for a given account divided by 2 ATR's with the "A" being 20 days.

    Looking to add to the positon at basis + 1/2 ATR. You now have cushion. Doubling up would make it 2%/2.5 ATR. 2.5 ATR represents a half week of net adverse movement.

    Add just once more, only .5% of capital with another 1/2 ATR north.

    Ideally posiitons big enough to matter but not big enough to take you out.

    Money is made (or lost) on the exits not entries.

    Fillled entry changes your psychological bias. From external to internal.