Always trading with fixed position size

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PBS

What are your thoughts on always trading a fixed size position where you decide beforehand that, for instance, every X points in price change should result in a certain PnL or % of account change so you trade Y contracts?
In other words, you have an idea that the market, currently trading at 80, is likely to move to 100 and not move down to 60 before that. So your job is to establish a fixed position of, say, 100 contracts using scaling in/averaging/pyramiding, etc. in the best way you can, that is to achieve the best VWAP.

This way you think in terms of points made/lost rather than what your reward:risk is. After all, it is only after you close the position where you can say how much you risked or have been rewarded with. For instance, you may close it before your intended stop or target, or you may get huge slippage with larger positions.

When the volatility of the market changes significantly you just adjust the fixed number of contracts you wish each of your positions to be so that the PnL/% fluctuations remain the same with lower/higher volatility.

It seems a very good idea to me and I realise this is only one of 1000s approaches to trading but would be happy to hear your thoughts.
 
i know this works for sum, but over the year i have been working on Risk to return so using 1% of my account to risk and then working out the pip size stop loss and making the adjustment to may lot size according to the risk. i think if i was trading with a much bigger account then i could feel more confident with a fix lot size but not at the moment
 
When you mention Fixed I take that as trading X number of shares per Y equity dollars in the account like 1000 shares per $50 000 in account... then 2000 when you get to $100 000 in account

The better way to position size is based on % of account... like risking 2% of the account and finding the share amount based on this risk... this way as your account grows your position size increases and when your account falls your position size decreases
 
What I meant was that ultimately you will not be able to define your risk just by a single stop order at a single price because there are liquidity/slippage/commission concerns. You could not risk $100k per point just by a single entry and a 1 point hard stop order (if only this was that easy) but you could build a position so that you are in a situation where the current market price is 100 and your VWAP is 30 points below the market because you initiated your position at a much lower price - then your position could sure be equivalent to $100k per point.

It is similar to what Justrade mentioned - you just assume that on a 100 point "stop" you will lose 2% of your account/X USD. You can also set a maximum "stop" in terms of points. But you may exit your position at 15 points, 10 points, etc. So that implies your risk is different on different trades.

Someone used a comparison:
Stops = passive protection (seatbelts in a car)
Position size = active protection (speed you drive at) - more important in my view. Both in driving and trading :)

Some market participants trade without hard stop orders at all - how can they define risk? Only by appropriate position size. That is what I do as well. When a certain number is hit I sure get out of my position but in chunks, every 30 seconds-1minute - sometimes you really get a better average fill on such a "stop" than by dumping everything at once. And this is scalable almost without limit - that is very important to what I aim for.

I follow some of the market wizards' approach - quoting from memory:
"-how much are we down on the position in EUR/USD?
- around $100m right now
- OK. Start dumping everything aggressively."

"I do not have a stop in place but when a certain number is hit I am out no matter what"

But anyway - a thousand ways to achieve success in this business. I like this "always the same position size" approach most.
 
"Always the same position size" wont grow your account exponentially which is what most everyone would like to achieve

And you are right because "you biggest loss is always ahead of you"
Whatever your plan is for your biggest loss value make sure to add some type of buffer for slippage
 
A fixed position size to me means that you always enter a trade with the same number of dollars or contracts. This means that your risk is defined by the price of where you execute your stop.

Adding to a trade whether averaging up or down adjusts your risk as the trade progresses.
 
Your description is flawed ...

Goal...
PBS said:
every X points in price change should result in a certain PnL or % of account change
More...

1)
PBS said:
establish a fixed position of, say, 100 contracts using scaling in/averaging/pyramiding, etc
More...

Scaling in/etc changes basis. For the most part, "certain PnL -or- % of account change" is inaccurate at best, meaningless at worst.

If you want "certain PnL -or- % of account change", it needs either
a) an all-in/all-out strategy. Or,
b) execution at PRECISE PRICE scale-in levels.
And then the question, what happens if execution fails, or the market does give such an offer and your position is incomplete?

Of note: Unlike "certain PnL", the "% of account change" can be applied to risk.


2)
PBS said:
When the volatility of the market changes significantly you just adjust the fixed number of contracts
More...

Volatility means nothing to the value of a tick!!

Volatility may affect the likelihood or the speed at which an actual PnL or % outcome occurs for THIS (or any) trade. And -YOU- have already determined that "goal" prior to the trade being initiated. On the inverse, what would you do when volatility dries up? Trade 200 contracts? So much for fixed size!


All in all, in association with a New Year... The best health exercises for you, are the health exercises that you will continue to do.

Whatever works for you, works!
 
The size of a position within a portfolio, or the dollar amount that an investor would trade, is referred to as position sizing. Position size is a tool used by investors to calculate how many units of a security they may buy, allowing them to manage risk and maximise returns.
 
Unless you have some sort of elaborate risk grading system, I can't see the utility of varying the notional value of the trade size.
 
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