How many contracts to allocate per trade as I increase account?

D

dberliner

Hi folks, I bet many contemplate this question and I couldn't find a suitable answer to this through the search feature.

I currently net slightly more than 2 ES points a day on average trading 1 ES contract and my account has grown to 5000$ (That's puny, I know, but I started with an amount most of you would say I better not even bother altogether, so I am doing ok, considering). Looking at the attached chart as guidance, I really don't like trading so many contracts with the amounts listed. This looks like a huge risk to me despite being consistently profitable over time.

What would be a better way to decide when it is high time to increase size.

- Factor of total trading account?
- Dedicated dollar amount per contract?
- Derivative of Stop loss risk % from overall account?
- Using Kelly Value and Math Expectation?
How do you do it?

Thanks!
:)

Dana Berliner
 

Attachments

What kind of reward ratio are we talking about here ?

You cannot win everyday, no one does so what's the max drawdown ?

Incognito
 
Quote from Incognito:

What kind of reward ratio are we talking about here ?

You cannot win everyday, no one does so what's the max drawdown ?

Incognito
More...


my current max drawdown is 30.75 ES points over a period of 5 days.
That may sound like a lot , but still over a bigger period time frame I'm averaging more than 2 ES points. Win/Loss Ratio stands at 1.2273. Average Daily gain is 3.32. How does that info help with the decision?

Thanks,

Dana Berliner
 
Quote from dberliner:



.....Looking at the attached chart as guidance, I really don't like trading so many contracts with the amounts listed. This looks like a huge risk to me despite being consistently profitable over time.

What would be a better way to decide when it is high time to increase size. .....
More...

You answered your own question basically. What ever feels comfortable.

That chart would have me worried too, with such a rapid increase in contracts without building up your account, skills, emotions and psychology to match.

For risk management, think about the worst case scenario, something that the exalted pros at Bear Stearns and ilk knew nothing of. Someday there will be a huge one day drop again, and of course that will be the day you are long and anything will go wrong. And there will be stretches where greater drawdowns will sure enough happen when you add.

Imagine a disaster and having to start all over with far less than when you started this. I would add a contract for every 10k to 15k, and even much more, gained and added to your net worth. Very slow going at first but by the time you build up to 5 contracts, adding another will happen much faster and you will have all that experience in the account as well.

You know you will be rewarded for being patient, mostly by avoiding being damaged too badly.
 
This is good advice - the attached account recovery picture is in my opinion way, waaay too aggressive with adding contracts. 20 contracts on only 20k in capital!? The market wouldn't have to wiggle too much at all for that capital to take a serious hit percentage wise or, worse, for your broker to start berating you with margin calls. I think 10k-15k per contract is a good, solid suggestion and if you wanted to get aggressive, then perhaps 5k per contract. Maybe that's conservative for you, but the object is the slow accumulation of gains while never putting yourself in a position where you could be easily wiped out. Just my $0.02...

Quote from FightTheFuture:

You answered your own question basically. What ever feels comfortable.

That chart would have me worried too, with such a rapid increase in contracts without building up your account, skills, emotions and psychology to match.

For risk management, think about the worst case scenario, something that the exalted pros at Bear Stearns and ilk knew nothing of. Someday there will be a huge one day drop again, and of course that will be the day you are long and anything will go wrong. And there will be stretches where greater drawdowns will sure enough happen when you add.

Imagine a disaster and having to start all over with far less than when you started this. I would add a contract for every 10k to 15k, and even much more, gained and added to your net worth. Very slow going at first but by the time you build up to 5 contracts, adding another will happen much faster and you will have all that experience in the account as well.

You know you will be rewarded for being patient, mostly by avoiding being damaged too badly.
More...
 
Quote from dberliner:

my current max drawdown is 30.75 ES points over a period of 5 days.
That may sound like a lot , but still over a bigger period time frame I'm averaging more than 2 ES points. Win/Loss Ratio stands at 1.2273. Average Daily gain is 3.32. How does that info help with the decision?

Thanks,

Dana Berliner
More...

The reason I asked is because I needed to know how big of a hit you were taking when things did not go your way.

I would increase one contract every time your capital is increased by the starting amount.

For instance, if you are trading 1 car and you started with 10k, for every 10k you make you add an additional one.

Overleverage kills traders.
 
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