Fixed Ratio position sizing - money management

[lukas]

I would like to get some clarification of the Fixed Ratio position sizing developed by Ryan Jones. It gives the formula of:

No. of contracts (N) = 0.5 * (1 + sqrt(1 + 8 * Net PnL/Delta))

Delta is critical here - it is the Net PnL per contract, required to increase the position size by 1 contract. The initial balance of the account is not included in this method.
Let's assume delta is $5,000. It implies that for Net PnL of $5,000, N equals 2.

Now, does this mean that after achieving $5,000 Net PnL the position size should increase by 2 contracts or by just 1 contract, compared to the initial size?

 

[jeffco]

one contract.

 

[status1]

I am interested in this subject as well
I believe I saw the formula somewhere else using 0.05 instead of 0.5
So using 0.05 that would be 0.2 contracts so that's less than one
Does that mean that you are risking too much ?
I would guess so since you are using 100% of your p/l to trade unless I am misinterpreting the meaning of it

 

[status1]

I did the calculation and look like the 0.5 figure is correct
So in the example above if you start with 0 profit and a delta of 5000 you would do one contract until you make $5000 than you can add one contract for a total of 2

The question I have is what level of risk you would use to get a delta of 5000 ?
In Ryan Jones video he started with a $5000 account and a delta of 100 and a drawdown of $500 so that's risking 10% to make the 100 delta which is fairly easy to do
I am not sure what the drawdown level would be to do 5000 delta

 

[easymon1]

The question I have is what level of risk you would use to get a delta of 5000 ?

fixed ratio
Here's a slideshare version Ryan Jones' book on fixed ratio etc, "The Trading Game".
A PDF used to be out there.

slideshare.net/JoseCabezuelo/money-management-ryan-jones

 

[dholliday]

fixed ratio
Here's a slideshare version Ryan Jones' book on fixed ratio etc, "The Trading Game".
A PDF used to be out there.

slideshare.net/JoseCabezuelo/money-management-ryan-jones

You got me with "This illustration neither promotes nor discourages pyramiding."
Found and downloaded.
Thanks

 

[isabellavillareal]

I can tell you now that formula is nonsense and is complex valued if pnl is negative

 

[easymon1]

I can tell you now that formula is nonsense and is complex valued if pnl is negative

How did you calculate your delta?