Money Management and Dynamic Intraday Position sizing

[vikana]

For me, at least, the issue with ES,NQ, EUR etc is that they don't scale well. For the MM algorithms to work, you basically have to have the ability to buy fractional positions, or for stock e.g. 53 shares of something. With futures that only work with extremly large accounts.

So in practice, I have found that looking at maxDD as percent of the account and pick some comfortable number (say 10%) is the most practical way to scale.

 

[ElectricSavant]

Vikana,

I agree, This is why I trade Forex with one unit trade ticket incremental possibilities.

Michael B.

 

[twalker]

I thought Jones book was good but it is also not giving full picture as he is without doubt on a fixed ratio mission. A lot of people who have tried various option over the years will still choose fixed fraction as they are not prepared for the risk a small delta will give them in the early stages of a program. I have run systems on fixed ratio successfully but it is a bit gut wrenching when you make the initial step-ups and the delta determination is extremely important and can only be found effectively using monte-carlo over many historical trades. Certainly essential to er on the cautious side.
For intraday fixed fraction is the simplest option IMO as everything else is really only applicable to longer term strats or at least it is the only time it will really make a difference over fixed fraction. Using kelly or optimal f is a quick way to ruin certainly.
As to what fraction to use intraday, that is at the discretion of the trader. If you look at your track record or rather your log and get a handle for your win/loss ratio then use this to determine what you should bet per trade. . It is really a good idea to get down to some spreadsheet work and see if you can work out how consistent you have been in the past few months and use this to determine whether a martingale or anti martingale best suits your strategy. If you have never had a run of more than 3 losses in a row then it is likely Martingale can work for you...it is risky for sure but IMO scalping is one area where it can be consistently good. If you find you have long losing and long winning streaks then definitely anti-martingale. Then determine for each trade on a win/loss basis what you will bet in % of account terms based on your ultimate stop, whether that be a tick or many ticks. Although for medium-log term traders 2% works with scalpers each trade is likely to be a larger % indeed for the spread traders this is often 10%+

 

[Mike805]

I believe trading stocks makes this question more straight forward. Stock moves tend to follow the sectors and any broad market strength/weakness. One approach is to use the momentum of sectors and trade heavier when all the "planets align" so to speak.

Also when the early stages of a move materialize, i.e. a key price point is being tested in the nas or a sector/economy related news event is about to be broadcast, a sense of anticipation can be seen (felt) in the price action. These tend to give me gut feel that I should go all in and press my bet.

The moves I try to trade will give me a reletively strong feeling of tension building. The release is usually anti-climatic and the resulting move is where I just hang on for the ride. This is how my profitable trades usually start out and I am working on listening to my gut more and really taking advantage of it when it is speaking to me (yes my gut voice speaks to me, I know it sounds funny).

I've noticed that if the price doesn't show this tension and my instinct doesn't favor any action, the trade will usually be a loser or just do nothing.

I am purely discretionary and I focus more on listening to my instincts more than anything else. I don't think you can apply these instincts to a mechanical system and hence mechanical systems are very limited in that respect. I don't think it is possible to program experience and feel into software, similar to not being able to program a robot M.D. that has to diagnose patients based on his experience rather than a set of rules.

To answer the OP, well, don't trade size when you are iffy or the gut is neutral. Trade size when the anticipation is building and your gut is telling you to step on it. Easier said than done.

Mike