Position Sizing

C

carltonp

Hello Fellow Traders,

I'm not sure if I'm phrasing this question correctly, but here goes.

As you'll probably guess from the following question, I'm fairly new to trading.

Over the last 10 weeks, 02/22/2011 to 04/01/2011 I have placed 46 trades. I currently trade equities.

Sixty one percent of the trades closed at a profit. However, the Pay-off Ratio is terrible, 0.64.

At the moment, I'm risking $100 per trade with R/R of 1:5. So for every $100 I would like to achieve $150. I size my trades purely on how much I would like to risk and how much I would like to gain. Therefore, the number of shares I purchase would be determined on this factor alone.

I would say that most of my winning trades close for about $100 and my losing trades stop me out at $100. The reason why I mention that is because it would seem the poor pay-off Ratio is partly due to taking profits before they reach $150 but always letting my losses run until they stop me out at $100. However, I don't believe that is the major reason for the poor pay-off ratio.

I believe the major reason for the poor pay-off ratio is due to bad position sizing. The problem is I don't know the best way to size my positions, other than how much I'm will to lose and how much I want to gain.

Another option is to stop trading equities and start trading another financial instrument.

If any of you guys/girls can give me some advice on position sizing and what instruments you think are better traded than equities (bearing in mind I'm a relatively new to trading) I would be very grateful.

Cheers

Carlton
 
I don't know what you trade, or if you are discretionary.. Just my 2c..

I think your risk/reward is the problem even with your high win rate. If you are going to risk $100 a trade, then why not try to make $300? That is how I trade, if I'm risking $1 I will have to make $3 for me to take that trade, otherwise I won't take it. This will allow you to have a lower win rate, again this depends on what you are trading, but just my opinion.

If you are wondering specifically about positon sizing, then maybe watch this video by Mark Sperling to get an idea of how tiering into your position will give you greater reward and minimize your risk along the way.

http://blog.t3live.com/2010/03/video-t3live-tiering-system.html
 
Quote from KingDong130:

I don't know what you trade, or if you are discretionary.. Just my 2c..

I think your risk/reward is the problem even with your high win rate. If you are going to risk $100 a trade, then why not try to make $300? That is how I trade, if I'm risking $1 I will have to make $3 for me to take that trade, otherwise I won't take it. This will allow you to have a lower win rate, again this depends on what you are trading, but just my opinion.

If you are wondering specifically about positon sizing, then maybe watch this video by Mark Sperling to get an idea of how tiering into your position will give you greater reward and minimize your risk along the way.

http://blog.t3live.com/2010/03/video-t3live-tiering-system.html
More...

Don't take this advice, unless it seems to fit your style of trading. Most traders I know who have a risk/reward (R) running at 3 lose money consistently.

It will only work for you if your system is good at calling larger swings. If for example, you trade levels for quick bounces (like me) then this will make you unprofitable. Most of my trades run at about a 1 R and I have a high win rate. If I increased my R to 2 or 3 I would probably not make money at all with my current strategy.
 
KingDong,

I appreciate your comments - I really do. However, I have to agree with what BlackBison is suggesting..


In the meantime, I am taking on board all the comments that traders are mentioning, so please keep the suggestions coming.

I am truly grateful for all the feedback and I will respond after reading a few more comments.

Cheers

P.S.
Just so you know, I do have a trade style similar to BlackBison...
 
Take away your Trade ratio. It shows nothing. My Trade winning % are like 45+% so far, but my entire acct is profiting over the past 2 years. Simply because all the winning trades are still in my portfolio, I cut the rest of losing trades

You mention trading right ? Means you have to look at what trades are a "bet", what are "risk taking", and what are so called "high probability" trades, and don't lump them together.

I don't really follow strict rules like Kelly Criterion
http://www.investopedia.com/articles/trading/04/091504.asp

but, as far as i know if i made profits this month, say 2%, then I shall risk 1% on more bettings and risk takings. Its a monthly thing. But if I made only 0.5%, then I trade high prob ones.

eg. Oil goes from 80+ to 100+, i actually went in quite abit and made alot. So at high prob trades, forget money management.

My 2 cents worth.
 
Take away your Trade ratio. It shows nothing. My Trade winning % are like 45+% so far, but my entire acct is profiting over the past 2 years. Simply because all the winning trades are still in my portfolio, I cut the rest of losing trades

You mention trading right ? Means you have to look at what trades are a "bet", what are "risk taking", and what are so called "high probability" trades, and don't lump them together.

I don't really follow strict rules like Kelly Criterion
http://www.investopedia.com/articles/trading/04/091504.asp

but, as far as i know if i made profits this month, say 2%, then I shall risk 1% on more bettings and risk takings. Its a monthly thing. But if I made only 0.5%, then I trade high prob ones.

eg. Oil goes from 80+ to 100+, i actually went in quite abit and made alot. So at high prob trades, forget money management.

My 2 cents worth.
 
Quote from savagemp5:

Take away your Trade ratio. It shows nothing. My Trade winning % are like 45+% so far, but my entire acct is profiting over the past 2 years. Simply because all the winning trades are still in my portfolio, I cut the rest of losing trades
More...

Hi Savagemp5,

Thanks for your suggestions. Can you elaborate a little further on why you think Trade Ratios mean nothing. I also don't understand what you mean when you say your Trade winning % is 45% +, but entire acct is profiting over the past 2 years'

Cheers
 
You must log in or register to reply here.
Back
Top