Max Position size and Liquidity

M

maninjapan

I have a basket of semi-automated strategies that I have been trading with very small size and have proven to be quite consistent and am looking to slowly increase position size. I am in the process of developing a max size calculation as some of the contracts and months I trade can be relatively illiquid. I am thinking that daily volume is a better input than OI but wondering whether it is as simple as using a % of Average Daily volume across the board or whether taking other factors into account (ratio of vol to OI, average length of trade in days,etc) will help give a more accurate number.

Across the strategies I trade quite a wide range of markets and contract months. The strategies themselves also have a range of holding periods, a few hours to a couple of weeks.

Any insights on this topic would be much appreciated.

Thanks
 
Quote from maninjapan:

I have a basket of semi-automated strategies that I have been trading with very small size and have proven to be quite consistent and am looking to slowly increase position size. I am in the process of developing a max size calculation as some of the contracts and months I trade can be relatively illiquidnever trade illiquid markets. I am thinking that daily volume is a better input than OI but wondering daily range is far more important once you have your liquidity issue sorted outwhether it is as simple as using a % of Average Daily volume across the board or whether taking other factors into account (ratio of vol to OI, average length of trade in days,etc) will help give a more accurate number.

Across the strategies I trade quite a wide range of markets and contract months. The strategies themselves also have a range of holding periods, a few hours to a couple of weeks.

Any insights on this topic would be much appreciated.

Thanks
More...

see above..if you can make money at it then fine..but there are far easier and less stressful ways to make money trading..and not holding overnight is a great way to get a good nights sleep:)

anyway..trade what you see and not what you think you see..if you are to use automated trading systems then you must be prepared and able to withstand the draw downs that will occur..if not then you just pissing against the wind and will eventually get burned very badly

trading should be stress free..that is 90% of what is required

TO
 
Quote from maninjapan:

I have a basket of semi-automated strategies that I have been trading with very small size and have proven to be quite consistent and am looking to slowly increase position size.
More...

Now you look above!It didn`t prove anything to you so far!

No way you can increase the size,slowly or quickly!
 
Let me start by apologizing for the vagueness of my initial post. By not being more specific on exactly what I class as 'Illiquid markets'
and 'quite consistent' it makes it difficult for those who posted to give accurate opinions. (to clarify slightly, I'm not exactly talking far out Orange Juice months and by quite consistent I mean no losing months since the start of the year )

However, rather than critiquing the validity of my trading methods or strategies, I was hoping to have a discussion on how to manage the size of a strategy's position in regards to the liquidity of the contract being traded. I'm trying to come up with some sort of guideline that will help me make sure that my position isn't too big for the contract being traded. I'm pretty sure something like this would be valid regardless of whether the contract is considered liquid or illiquid, or whether the strategy is automated or manually traded.

Has anyone considered this as part of their risk management when developing or using a strategy?
 
even with the best strategy,the drawdown could be 40% up to 100+%,using leverage instruments like futures.so,do the math...could that be any easier to calc?

5 to 10 amount on the initial margin i think would be good enough.
 
Snake Eyes, I can't agree with you more about the risks of trading leveraged instruments. Have been at 40%-50% before, not nice, but survived. Learnt some very expensive lessons along the way....

But for the sake of this argument, lets pretend the size of my account is more than enough to cover what I need. It may not be right now, but if you start thinking about it when you are actually in a position to need it, then you have started thinking about it too late.
 
Not nearly enough info regarding instruments and position deltas ( hedged, unhedged) to offer an opinion.
 
Without getting into too much detail 95% of the positions are either calendar spreads or intermarket spreads. The remaining 5% are intraday occasionally overnight outright positions. Markets traded are u.s and European energy and metals as well as some grains . I also trade intermarket spreads in indices but my maximum risk per trade will well outway any position size risk in those markets.....

I don't intend on getting in with a full position at any one time I'm more worried about how big is too big when it comes time to cut a loss. ( Unless I've hit a predetermined drawdown level and need to get out at all costs, in which case I was in too big and too long anyway, I don't invisage having to close out at market. Having to do that would mean I'd broken too many of my rules)
 
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