Money Management

M

man

Making a 10% move with 1 stock makes the same pnl as making a 5% move with 2 stocks. Thus it makes very much sense to find out when presumed risk allows me to bet more.

Then, why do people never talk about variations in position size? Why are there so many concepts about signals/exits and so few about variance of position size?

Do daytrader no care? Or are they not aware?

Do you vary your position size in response to the market?
 
I think I should write more on my personal thoughts on the subject:

I. single instrument level
the first basic concept is: always risk the same amount, but vary the stop according to market activity. A more volatile environment requires a wider stop to keep from being taken out by "noise". The stop determines the risk per contract or per stock. Bet amount and risk per contract/stock determine number of contracts/stocks.
now the amount bet for a specific trade can be varied. Break outs out of low volatility get more money. Some give more money as well to extremely high levels of vola, leaving the betsize u-shaped relative to volatility. For some daytrading strategies a minimum vola is required and the bet size increases with vola and only comes down at extremes, forming a hill shape.

I. portfolio level
taking correlation into account helps to balance out portfolios. VAR can help here, although I am not sure if anybody uses it in practice. we programmed a tool that could historically test a portfolio driving at constant VAR, which did not outperform. I must admit that we id not proceed to far in there.
I think that today it is necessary to take risk on a portfolio level, meaning that you shift money from one strategy or group of related instruments to another in flexible way.

these are my thoughts on that.


peace
 
Quote from man:

I think I should write more on my personal thoughts on the subject:

I. single instrument level
the first basic concept is: always risk the same amount, but vary the stop according to market activity. A more volatile environment requires a wider stop to keep from being taken out by "noise". The stop determines the risk per contract or per stock. Bet amount and risk per contract/stock determine number of contracts/stocks.
now the amount bet for a specific trade can be varied. Break outs out of low volatility get more money. Some give more money as well to extremely high levels of vola, leaving the betsize u-shaped relative to volatility. For some daytrading strategies a minimum vola is required and the bet size increases with vola and only comes down at extremes, forming a hill shape.

I. portfolio level
taking correlation into account helps to balance out portfolios. VAR can help here, although I am not sure if anybody uses it in practice. we programmed a tool that could historically test a portfolio driving at constant VAR, which did not outperform. I must admit that we id not proceed to far in there.
I think that today it is necessary to take risk on a portfolio level, meaning that you shift money from one strategy or group of related instruments to another in flexible way.

these are my thoughts on that.


peace
More...


very well said, man. i use a calculation involving ATR to determine stops, outside of my system trades.

best,

surf:)
 
Yeah, i think postion size is the most important part of risk management for swing trades anyway. If trade does not go my way in a day or two, i will let it move 5 points, add another 25% and then sell or cover the second 25% plus a percentage of the original trade. Do this five or six times and you can get out of most bad trades with a small profit. Cannot exactly recommend this type of trading but it works for me. Used to use stops but a string of bad trades and you are out 1K+. Although it is always tempting to jump on a faster horse, averaging works OK in choppy market.
 
Quote from man:

...Then, why do people never talk about variations in position size? Why are there so many concepts about signals/exits and so few about variance of position size?

Do daytrader no care? Or are they not aware?

Do you vary your position size in response to the market?
More...

Traders do talk here about variations in position size...yes...there are more concepts about entry/exit signals.

Varying position size in response to market conditions is a must as a trading tool in my opinion.

Some days I go heavy, other days I trade with my normal size and other days I go very light on the contracts.

NihabaAshi
 
Quote from man:

...
Do you vary your position size in response to the market?
More...
When trading equities, yes, but more specific to the stock than the "market."

When trading spoos, yes, but less so.

nitro
 
i found it always very disappointing to test systems with more or less fixed money. that is why i started doing this all with prop software.
i think that this is actually the real difference between professional and private trading.

i found it quite encouraging that others here are interested in position variation as well, sine you usually do not find too much about it. It is simply not so spectacular to sell that or even just talk about it ...
 
Do you vary your position size in response to the market?
More...

No, I vary my position size according to my stop loss and according to the total dollar amount needed for a trade.

I use fixed stops, based on s/r and vary my position so that a loss never exceeds a certain preset amount and secondly I never put more than 1/3 of my equity into one stock.

Happy trading,
Sittas
 
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