Position Size 4 DAY TRADERS

Quote from Maverick1:



Would anyone venture to come up with a simple formula that would describe the optimal risk fraction as a function of trading frequency? I'm sure that would be helpful to many here...
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yes - this was what i was looking for untili noticed that the real big hitters arent bothering with such fractions.

if they are right, they want to be right in a BIG way. sure we all take a hit now & then.

if a trader has an edge, he needs to exploit it to its full potential.
 
Quote from Businessman:

2% is a big risk for day trading, five losers in a row and you
are down 10%.

You would risk more than 2% if your win rate is like 75-90% and
the big full size losers only occuring 5% of the time or less.

Then you can risk 5% of your account because the big
full size losers dont come very often.
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I was going to suggest that you need to assess the risk more clearly in day trading because a 2 point stop might gap by 2 or 3 extra points in the worst case whereas in eod trading you might have a 30 point stop so a gap of 2 or 3 extra points matters relatively little.

For example on HSI my stop might be 5 points but I have had the market gap 23 points against me so my real risk is not 5 points but 28 points.


The point that Businessman raises is an additional factor. In day trading, if things go "wrong" then your psychology can go with them and as a result you can make a series of mistakes. In eod trading you have more time to realise what is happening and either stop trading or fix it. This day might also occur on a day where fredd was not in top form.

So as well as the higher percentage gap error you have a higher risk of going systematically "wrong" for a series of trades. The first would leave you with a 2% risk but with a better assessment of what your real risk was. The second would suggest a lower risk based on the probability that you might experience a systematic sequential failure.

Or so it seems to me.
 
IMHO it depends what feels most comfortable when trading.

This is my approach:
- I never risk more then 3 ticks, if I'm wrong I'm wrong small (timing was bad)
- I use stp's but only for protection if my system fails, I always try to exit on the Ask when i have a Longposition, so when the market falls 3 ticks below my entry I will try the close on the Ask.

IMHO how you enter the depends on your strategy. I think when scalping you shut enter the market with a full position, scale back if the market doesn't move in your favor so your risk decreases (time stp's).

When you have trades of around 10m or longer you shut add to your winners (of course it depends on your strategy). So, when the market moves in your favor add contracts to your position. when the market slows down close the contracts you added and close down your position when the "move" is over.

And about your position "when you're 100% right". when trading I assume that my position is wrong till proven otherwise, it keeps me sharp and sometimes I miss moves, but also miss losses. IMHO you only control your losses and eventually winners will
come.
 
Quote from FT79:

IMHO it depends what feels most comfortable when trading.

This is my approach:
- I never risk more then 3 ticks, if I'm wrong I'm wrong small (timing was bad)
- I use stp's but only for protection if my system fails, I always try to exit on the Ask when i have a Longposition, so when the market falls 3 ticks below my entry I will try the close on the Ask.

IMHO how you enter the depends on your strategy. I think when scalping you shut enter the market with a full position, scale back if the market doesn't move in your favor so your risk decreases (time stp's).

When you have trades of around 10m or longer you shut add to your winners (of course it depends on your strategy). So, when the market moves in your favor add contracts to your position. when the market slows down close the contracts you added and close down your position when the "move" is over.

And about your position "when you're 100% right". when trading I assume that my position is wrong till proven otherwise, it keeps me sharp and sometimes I miss moves, but also miss losses. IMHO you only control your losses and eventually winners will
come.
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yep - good, wise advice.

but are you putting on as much as you dare on each step - according to comfort and confidence, or putting size on according to some predetermined money/risk management concept/%?
 
Quote from FredBloggs:

yep - good, wise advice.

but are you putting on as much as you dare on each step - according to comfort and confidence, or putting size on according to some predetermined money/risk management concept/%?
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Dear FredBloggs,

You should think in units, I trade a setup that has a price target, some times the market rallies big time threw this price target, at that moment you have money to play with. Your profit is bigger then expected so why don't you add with the profit you have on this trade by adding another unit (one contract for example).

But remember, your are always wrong, so if the market doesn't move in your favor close the added unit and never let your profit run below your initial profit target.

I must only say I don't use a mechanical system, I only use trendlines, candles, volume and Time & Sales so adding contracts is based on experience, I also trade just one setup. Only do it if you feel comfortable adding, if it doesn't feel good, don't do it. It sounds silly but it works for me.

A good book about trading is of the POP, it's a word document I have added. It will give you great insight (it has given me)

PS. PLEASE scan the document for viruses, you never know!!!!!

PS2, this is based on my personal experience and works for me, perhaps this will help you find something that works for you
 

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cheers folks -

ive read through it a few years back.

looks like i should give it some more consideration though!

adding to my position is only something i tend to do when i decide to hold on to part of the position - quite rare these days, but markets look like they are starting to trend a bit better recently (ones i trade anyhow)
 
Quote from Spydertrader:

and as a URL:

http://www.futuresmag.com/futuresclassroom/phantom/phantom.html

- Spydertrader
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The problem with POP's material is that without the right context to put it in, it simply does not help much. Context is everything in terms of risk control, you can't add to a trade if you are scalping 500 times a day like some do. If you can figure out POP's style, then I think there is benefit, for longer term trading his concepts make sense, no doubt.
 
When you backtest your strategy increase your position size until you reach a point where you find your drawdown becomes excessive. You can have an equity system earning 40% a year with a 4% dd or you can have a daytrading system earning 200% a yr with a 30% dd. The position sizing rules control what happens in a flexible system.


//Position Sizing Algorithms for Amibroker

1) Trend Following

Capital= 100000;
Risk = .03 * Capital;
TrailStopAmount = 10 * ATR( 10 );
PositionSize = (Risk / TrailStopAmount) * BuyPrice;


2) Portfolio Allocation

PositionSize = -7.5; // allocates 7.5% of capital to each trade
 
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