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Sizing

Sizing & how to manage riskThe easiest part, if everything's perfect you just trade as much as the market allows before the diminishing returns hit hard. However usually everything is not perfect at the beginning, so continue reading. Logically, in order to operate successfully & continuously (you can't market make much you if loose money aye?), your equity chart should represent a smooth movement from down left to the top right corner. What factors affect an equity chart? 1) Market activity itself; 2) An operation principle (strategy/system); 3) An operator(s). So our potential sizing formula/algorithm should, lol, contain these 3 factors. Makes sense? 1) If market activity is too narrow we increase size, if market activity is too wide we decrease size, otherwise if its normal we don't change anything; 2) After a systemic loss we decrease size, after a systemic profit we increase size, otherwise after a +- breakeven we don't change anything; 3) If there's real confidence about what's coming you increase size, if there are doubts you decrease size, otherwise you don't change anything. Number 3 needs a lil clarification, I didn't say "you're confident/have doubts", I said "there's confidence & there are doubts". It's not only you and quality of your operation, what you also need to feel is whether all of us, as the collective, whether the market itself is confident. And there you can use all the available info, all the other assets, all the non-market data. Understand that we are all the market, you're part of it when you trade. Every1 looks at the same data. The Collective. The Feedback loop. Ok, so how to increase/decrease exactly? First you need to calculate the maximum size. 1) Come up with the maximum tolerated loss in money for one trade (more on that later); 2) Look at the chart and find the maximum distance between the entry & exit-at-loss points; 3) Find out the maximum size that won't allow you to loose more than max tolerated loss in case of passing the distance you've just found out. These numbers should be reevaluated when there's a change. Don't forget that a change can be seasonal, just like volatility on ES futures changes after US open. Imagine you ended up with 70 lots. Divide it by 7 equal chunks. Why 7? Because of number of factors, we had three, 3*2 + 1. So now one chunk is 10 lots. One decrease/increase = 10 lots. Then you start trading at 4 chunks (40 lots) (3 + 1) (this way you got more freedom, you can both increase and decrease after the first trade). Then you just and increase/decrease according to the plan. For example, you made a profitable trade at 4 chunks, and the next level is very tight, so you have 2 systemic increases, so you increase by 2 chunks (20 lots). If you hit zero chunks you make a imaginary trades and then come back to the real account when your size becomes one chunk, if you hit 7 chunks you don't go higher (maybe couple of 8 chunks trades might make sense tho). You're free to fine tune this adjustments live, you can eg see a serious vola increase and decide to decrease by 13-16 contracts instead of 10. Calculating these things precisely won't magically turn a loosing operation into a profitable one, but will make you focus on the wrong thing & steal your energy. Don't calculate, trust yourself & let your brain approximate and feel da thing. Let's come back to the maximum tolerated loss in money. Making it 1% or 2% or 37565476% of deposit doesn't make any sense. First of all, a deposit can be financed externally, with a credit line, with a prop shop etc. You deposit should never be touched, only the risk capital above this deposit. Second, what you care about 4 real is how much risk capital do you have. For example let's say $10k, that's actually a good amount of money. Third you divide the risk capital by 7, and end up with max tolerated loss in money for one trade. No, consecutive loss streaks have nothing to do with coins & binomial distributions, so number 7 is not worse, but better cuz it's simpler. I think 4-5 consecutive losses are "OK", but 10 is too many. P.S.: if you've lost you risk capital/thing ain't going, you just stop, evaluate, fix the problems, test on simulator & start fixing another risk capital, and go again, until the victory!
CME_MINI:ES1!Education
by gorx1
Position Sizing (Course #0)My very first course was going to be the winning rate. As I wrote down the other ones, I realized that position sizing, understanding what it is and how it works, was actually the most important part of it all. Therefore, I have decided to create this course #0 as the one you MUST take first to understand the other stuff. Understanding position sizing is very tricky actually. The very first time I learned about it was with Crypto Cred. He’s got a lot of great courses on trading and Technical Analysis, I also recommend you checking him out. So here is what most people think about doing: I will buy 100% of my account balance into bitcoin ($1,000 account), my account size will then be $1,000. Or, I will buy with 15% of my account, so my position will be $150. Even better, I will go 10x and my position size will be $10,000. This is great and all, but this is NOT how you should look at it. Whenever you trade, you MUST – SHALL – HAVE TO HAVE – an plan on where and why do you enter, where you need to exit at profit AND where you need to exit at loss. If you don’t want to accept that, no good. If you want to invest into something, you MUST – SHALL – HAVE TO HAVE – an plan on where and why do you enter, where you need to exit at profit AND where you need to exit at loss. If you don’t want to accept that, no good. It’s like driving, you must know when to turn, accelerate and break. So, because you will have a plan, you will know OR you will decide where to put your Stop Loss. For example, you want to put your stop loss the 20 EMA. Or, you want to put your stop loss at the low of the previous candle. Or, you want to put your stop loss 0.5% below your entry. Or, you want to put your stop loss at the previous support level. Once you have decided where to put your Stop Loss, based on your strategy and on the structure of the market/chart, you will need to decide how much you will risk on that trade. Basically, trading is like betting. You will bet/risk an amount of money, hoping to make a profit. To give you an idea, 1% risk is cool, if you want fast results you can go to 2-3% (of your account balance). Some great traders like to do 5-20%, but this is super high risk. 5-20% on an intraday trading strategy (in and out during the same day), then this is degen to me. On an intraday 1-2% risk per trade is good. So now, you are starting to be good at position sizing: you know where your stop loss will be and you know how much you will risk. Let’s go back to our examples of stop losses. Example 1: you want to put your stop loss the 20 EMA Example 2: you want to put your stop loss at the low of the previous candle Example 3: you want to put your stop loss 0.5% below your entry Example 4: you want to put your stop loss at the previous support level On the above chart, here are the distance between your entry and the stop losses: Example 1, the 20 EMA is 0.28% below your entry. Example 2, the low of the previous candle is 2.30% below your entry. Example 3, the stop loss is exactly 0.50% below the entry, like you decided. Example 4, the previous support level is 4.60% below your entry. Now let’s calculate your position size: Magic Formula: Position size = Risk % / Distance to SL % Example 1: 1% / 0.28% = 3.57 This means your position size will be 3.57 times your account balance. Example 2: 1% / 2.30% = 0.437 This means your position size will be 0.437 times your account balance, so a little bit less than half of it. Example 3: 1%/0.5% = 0.50 Your position size is equal to half your account. Example 4: 1%/4.60% = 0.22 Your position size will be 0.22 times your account. So now, do you understand that leverage should only be necessary when your strategy calls for a Stop Loss that is positioned at a distance that is less than your risk %? This is example 1. You should NEVER think “I want to use 10x” just for fun. You should only apply leverage because your position size calculation told you so. Conclusion: Position Sizing is the calculation of how much should your position be, so that when you hit your SL, you only lose what you planned losing. Position size = RISK % / DISTANCE TO SL %
Education
by Maddrix_club
1
Position Sizing in Trading - Educational VideoHello traders. In this Educational video I will talk about Position Sizing in trading. You know as a trader that the first part that you have to do when you're ready to get into a trade is how much you are willing to risk per trade. Position sizing refers to the number of units invested in a particular security by an investor or trader. An investor's account size and risk tolerance should be taken into account when determining appropriate position sizing.
NASDAQ:AAPLEducation
by dionthas
11