Stake sizing Anyone who has been through the rinse repeat emotional cycle of the markets knows that a position sizing algorithm is extremely important. Over the course of my trading career I've many times created simple position sizing algorithms, to limit myself, and to correctly push myself at the right times. I'd like to share with you all the latest iteration, and hope that you might benefit. This spreadsheet was created for the forex marketplace. You can modify, and use it however you like. I've tried to keep it as simple as possible. Explanation: The first number is your maximum position size. The green box is your profit ceiling. The red box is your loss floor. The darker blue box, maximum loss per trade taken. You can fall through floors, but upon hitting the profit ceiling you should take profits out of the market. (Preferably a separate account) The last light blue box is the suggested profits. Sometimes I like to take half or one third of this profit target, and then take the rest as I again approach the profit ceiling. I aim for a smooth equity curve. These profits can be used to push yourself through a psychological equity barrier, or (my favorite) trading rewards. Example: Code: INITIAL: 1000 CHF INITIAL MAX PIP COST: 7 CHF (70,000 CHF, or 0.7 Lots) PROFITS TAKEN: 0 INITIAL TOTAL: 1000 CHF [list] [*]First we move up towards 1200, [*]As we approach 1100, I want to take 1/3 profits (160/3 = 53.333) [*]Equity drops to ~1040 [*]We pass the 1100 barrier, redepositing some of these previous profits if we loose momentum [*]At 1160 We take profits, and continue from 1010 [*]At 1200 or a little above we can then take our last profit segment. [*]Only now, can we safely breach the 1200 ceiling [*]Begin using our new position size (9 CHF / Pip) [/list] FINAL: 1200 CHF FINAL MAX PIP COST: 9 CHF (90,000 CHF, or 0.9 Lots) PROFITS TAKEN: 160 FINAL TOTAL: 1360 CHF Depending on how smooth you want your equity curve, and transaction costs, you can quarter, half or just take all profits at one time. It's better to bank while you're going up, than to be overextended psychologically. Losing: If you were to fall through a loss floor (it's going to happen) move down immediately to the lower position size. If you fell a long distance it can be a good idea, again to take profits for this lower level. The normal reason for a fall is because of the new higher risk level, and unconditioned psychology. Position sizes are calculated from the current levels loss floor, so as to allow constant sizing even after many losses. NB: I'm always looking for more feedback on my systems, if you use this and enjoy it, or can think of any constructive criticism, I'd greatly appreciate your feedback. Links: Apple Numbers (Original) Excel To begin input your current equity in the bottom left cell. Mods: Im not sure if this really belongs in the forex forum, as with a little editing this sheet can be used for any risk venture.
Thanks for sharing! That's one way of doing it, and sometimes it's inevitable. But a problem with reducing position size after losses is that you give yourself a steeper hill to climb back up again afterwards. But perhaps your chart levels and thresholds have already taken that into account?
What you're talking about sounds a little bit like a martingale system, which I found to help sometimes, and cause excess volatility at others. It ends up a little too close too averaging down for my liking. If you'll notice, this chart does take into account, the loss of equity. As the maximum position size is taken from the loss floor. You can go all the way down to this loss floor and still have the same position size. Risk spike: increase the risk % immediately after dropping down through a level, (by a predetermined amount) and lower it again upon remounting. This would give you a boost, but I prefer adding previously clipped profits if I think my level is unjustified.