need position size math help

Let me try and reword this;

Suppose you start trading your method tomorrow for the first time ever ----------> you start at +/- 0pts. Net Profit, how many points do imagine the drawdown in pts. can get (-25, -50, 75, 100)

After you come up with what you feel to be a reasonable guesstimate of the total # of points your method can lose before going a maing a new net pt. high -- then go and ask yourself how much of the actual account you are willing to lose before going onto mae a new equity high.
 
Profitseer, I am going to tell you something rude, but it is only because it could save you a lot of money, so try not to hate me:

YOU ARE IN OVER YOUR HEAD. You don't know enough to ask a question that makes sense. Start over. Learn the vocabulary of trading systems and then come back and ask your question again.
 
What type of profit return ( before commission ) do you expect?

A question I always like to ask myself as well as other traders that have a system, is what return are you looking for per trade and per month to justify the risk you are taking.

AllenZ
 
Originally posted by AllenZ
What type of profit return ( before commission ) do you expect?

A question I always like to ask myself as well as other traders that have a system, is what return are you looking for per trade and per month to justify the risk you are taking.

AllenZ
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Allen, :)

I take the opposite approach myself, I suppose I work backwards.
Any time I come up with a "concept" or "method" that I would like to employ -- I ALWAYS look at the downside first and then proceed to work from there! I guess I say to myself what is the risk per trade and does it justify the potential "macro" reward. I suppose we get to the same place by starting at polar opposites :D

Hope all is well with you,
Commisso
 
Originally posted by profitseer
ok let's say average loss per contract per trade $42.3
Average profit per trade $45.2
including slippage and commisions and system failures and mental errors and a few minor catastrophic errors.

Hit rate about 50%

All I really want to know is how to do the math, the primary objective is to risk 2% of equity on every trade and still survive a 50% drawdown. Preferably without reducing position size. So far I can figure out that that is not possible with 10 contracts or 5 contracts.
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You need to set up a number of trades (per simulation) that will yield your average win/loss and winning %tage (that's tricky).

Do you have Excel? Than you may set up a simulation in VBA like this (or use Windows scripting host, in case you got Windows2000):

============ Start of run =================

Assign your initial equity, the %tage you want to risk per trade, the amount per contract, the average win/loss and your winning %tage.

For your number of trades repeat (its called a run):

- Is current equity less than 50% (or whatever you thin appropriate) of initial equity? Than count this run as failure and start the next one.

- multiply current equity by %tage you are willing to lose, i e. determine possible loss in $, divide this amount by your average loss. That is your number of contracts. It should be at least 1, if smaller, count as failure and stop. Multiply number of contracts by amount per contract: that should be smaller than current equity, if not reduce number of contracts until it is (number should be at least 1 of course).

- now draw a trade: VBA offers a random number function. Your %tage of winning should be written as e.g. 0.5 for 50%. If rd() is less than (%tage of winning) multiply (number of contracts) with average loss and subtract from current equity, if it is greater multiply (number of contracts) by average win and add to current equity.

============= end of run =====================

Now make at least 200 (I suggest 1000) runs and add the number of failures: print this number as percentage of (number of runs): I think anything higher than 3% is a high risk.

You may vary your parameters like initial equity, %tage of winning, averages.

This is not an elegant optimization, just a crude trial and error, but it will give a feeling what you are up against.

Regards

Bernd Kuerbs
 
This isn't a trading question. I already said. about $43 dollar loss per contract, about 45$ profit. About 50% winners versus losers. Willing to lose 50% of total equity.

If I start with enough to maintain constant size, the $43 risk is not large enough for me.

What I want to know is how does the math work so I can compute if it is better to start with a size that represents 2% loss on a $43 hit, and then reduce size when in a drawdown. or is it better to just forget trying to average 2% per trade and allocate twice the margin for each contract and stick with that size through thick and thin.
 
see, this is a scalping problem. Most normal people are never confronted with it because their average loss would never be too small. But for scalpers it is a serious problem.

If I allow twice the margin, my max loss is below 2%. If I don't allow twice the margin per contract, then I need to do the math to find out how it will work going through a 50% drawdown.

And then decide which is the better approach, or at least discover some sort of bell curve.
 
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