Position sizing and adding to winners.

[schizo]

I've been thinking about position sizing lately and have wondered if I could peg the size to max risk per trade. For example, suppose my max risk is 10 points per trade. If I enter a trade at 2950 with the stop loss at 2945, then my max risk is 5 points (10 divided by 5 is 2), so I will enter at 2 lots. If the stop loss is 10 points, then it will be 1 lot; if 3 point SL, then 3 lot. Hence, in the end, my max loss is fixed at 10 for every trade.

Any thoughts?

 

[Overnight]

I've been thinking about position sizing lately and have wondered if I could peg the size to max risk per trade. For example, suppose my max risk is 10 points per trade. If I enter a trade at 2950 with the stop loss at 2945, then my max risk is 5 points (10 divided by 5 is 2), so I will enter at 2 lots. If the stop loss is 10 points, then it will be 1 lot; if 3 point SL, then 3 lot. Hence, in the end, my max loss is fixed at 10 for every trade.

Any thoughts?

Well, that depends on the volatility of the instrument you are trading, now doesn't it?

If your max risk is 10 points per each trade, and you go half that with two lots on the SL, sure, you are still risking only 10 points per trade, PER CONTRACT. Going 3 lots? So you are basically at 3.25 points per trade on the SL.

Why don't you then scale it up to 10 lots? If you are risking 10 lots per trade, you need a 1 point SL and TP. How realistic is that? It is not with the price action of this year. It all depends on the volatility of the instrument.

That one 10 lot trade can halt your trading for the day, because 1 point stops and losses on ES would be bingo bango nutso. You need to give your trade room to breathe in this environment.

You'd be better off going for many 10 point targets a couple times per day on one contract, rather than a single 1 point target once per day with 10 contracts.

 

[schizo]

Well, that depends on the volatility of the instrument you are trading, now doesn't it?

If your max risk is 10 points per each trade, and you go half that with two lots on the SL, sure, you are still risking only 10 points per trade, PER CONTRACT. Going 3 lots? So you are basically at 3.25 points per trade on the SL.

Why don't you then scale it up to 10 lots? If you are risking 10 lots per trade, you need a 1 point SL and TP. How realistic is that? It is not with the price action of this year. It all depends on the volatility of the instrument.

That one 10 lot trade can halt your trading for the day, because 1 point stops and losses on ES would be bingo bango nutso. You need to give your trade room to breathe in this environment.

You'd be better off going for many 10 point targets a couple times per day, rather than a single 1 point target once per day.

Thanks for the feedback, but 10 points was just an arbitrary number I chose as an example. It could be higher or it could be lower. But the underlying premise is that you should adjust your lot size based on the max risk taken for each trade. I am currently not trading this way but something I've been thinking about lately.

 

[Overnight]

...but something I've been thinking about lately.

I've been thinking about this for years, and the conclusion I have come to is that if your plan (flipping like the schizo you are) is working out for you and you are green for the week/month/year? Don't change a thing and simply scale up the CURRENT plan, without changing the plan. Changing the plan adds in too many variables.

 

[KCalhoun]

My biggest lesson learned is to not scale in too soon.

 

[murray t turtle]

My biggest lesson learned is to not scale in too soon.

%%
That;
& not scale in too late.
The ways I like to trade/invest, find a good trend like DAL//ETF or better ETF trend.I just read something in a book called Bottom Line. Jim Cramer said he got the bottom about one/in 100 times .LOL So he admitted buying 5k shares=he stopped doing that all @ once. Odd that he noted that, but his hedge fund was better than average...…...…..............................…..

 

[Laissez Faire]

I've been thinking about position sizing lately and have wondered if I could peg the size to max risk per trade. For example, suppose my max risk is 10 points per trade. If I enter a trade at 2950 with the stop loss at 2945, then my max risk is 5 points (10 divided by 5 is 2), so I will enter at 2 lots. If the stop loss is 10 points, then it will be 1 lot; if 3 point SL, then 3 lot. Hence, in the end, my max loss is fixed at 10 for every trade.

Any thoughts?

Hi, Schizo,

I thought this was the standard way of doing it for those who actually manage their risk? If you have not been doing this - what HAVE you been doing?

I'd say decide what your maximum risk in % is per trade and then create a matrix in Excel which references your current account.

Then you'll know how many lots you can put up for a set amount of points in risk. Just like you mentioned.

PS: Just because your plan says you can risk say 2 % per trade does not mean you have to. Not trying to preach here, but it's something I've been doing lately. I try to hold off my maximum bets for times where I feel very certain.

 

[Laissez Faire]

Here's an example from today.

We were up against a resistance level on ES and while I was bullish, I did not want to take on a full position at that point in case we saw a deep retrace first.

At the same time, I didn't want to risk the market leaving me behind. I set up 2 additional buy stop orders at key levels and was able to get a decent average with a fairly tight stop @ 60.

This does not always work of course as fake breakouts are common on ES, but I had reason to believe that wouldn't be the case today.

90% of my trades are still all in/all out, but I find that there are times where it can be useful.