Position sizing

[onelot]

Quote from taowave:

I dont see how you can say the 2% rule is crap,and to be honest i am not sure which case you are arguing..more or less...or just not any hard coded number..

On one hand you argue that correlation goes to 1 in a dislocation,yet you also feel its prudent to put the pedal to the metal and levrage the shit out of positions.And if I am not mistaken,it was you who advised on doubling up at max pain thresholds.

the max amount of equity to bet is a very subjective question..Do you judge trading success by max net profit???Is it a maximising Sharpe or recovery ratios???

Until you define success,this is a meaningless dick swinging debate and you should know that

tao, those are some good points, but try and tone down the hostility. what you're seeing from mike is the frustration of arguing with people who don't trade for a living about the intricacies of trading for a living (that they think they know) the 2% crap mschecy's referring to is b1s2's 2% of net worth comment. read his last few posts... it is crap.

paragraph 2... brings up good questions about when to bet big. there definitely are times where not betting big is a mistake. much like not raising AA lowers your expectancy in poker. so i think both worlds can exist: one, taking into consideration your overall correlated risk (system wise/portfolio wise), and two knowing when it all lines up to put on large positions.

i agree, max amount of bet is subjective... but i also think there is some guidelines of objectivity that can be hit on. like, don't be stupid and risk 2% of your net worth.

i don't think it's necessary to agree on objective success, but if you're communicating and defining your risk it's pretty easy to get a sense of what kind of returns that person is going to see (eg. low sharpe high returns, high sharpe consistent returns, etc). what's valuable for me is to see how others who actually trade are approaching it. like some of the guys on the pl thread. would be killer to have rearden chime in on this again, i'd love to see the risk profile there.

mike, i have one question that wasn't clear from your posts. typically are you trading with fixed risk% and then betting larger on exceedingly ripe trades? or does it always sway based on trade expectancy?

i've just recently started to experiment with larger percentage bets for higher expectancy trades. it took me awhile to mechanically define what those were within my strats, but it's paid off well. i'm still toying with risk levels though (ie how much for big bets, etc). this is an endless topic and a really good one, if the noise stays to a minimum.

 

[Buy1Sell2]

If someone is interested in using less than their total liquid net worth in the calculation, that is fine as well as it makes the trader even more conservative. You should however, be able to withstand 2 percent of total liquid net worth on each trade/idea and that is to be considered very prudent. If the stop that you want to use puts you outside that parameter, then the trade should be lightened or avoided. This is a very good rule to follow and if violated will cause quite a bit of long term financial pain and of course, the emotional pain will be difficult to deal with.

 

[Trish]

Quote from sosa1974:

Quote from taowave:

Trish the dish, look what you started

Trish the dish, you wish.

Bottom line is what is already working for you personally? Debating is the improving part, otherwise you would just be reading this only.

 

[sosa1974]

Quote from Trish:

Trish the dish, you wish.

Bottom line is what is already working for you personally? Debating is the improving part, otherwise you would just be reading this only.

Just a joke sister,

It is a good debate though. Good trading to you and everyone.

 

[Trish]

Quote from sosa1974:

Just a joke sister,


Not offended-thought it was funny.......

 

[sosa1974]

Quote from Trish:

Quote from sosa1974:

Just a joke sister,


Not offended-thought it was funny.......

oops... sorry. With all the fragile egos you never know

 

[taowave]

Quote from onelot:

tao, those are some good points, but try and tone down the hostility. what you're seeing from mike is the frustration of arguing with people who don't trade for a living about the intricacies of trading for a living (that they think they know) the 2% crap mschecy's referring to is b1s2's 2% of net worth comment. read his last few posts... it is crap.

paragraph 2... brings up good questions about when to bet big. there definitely are times where not betting big is a mistake. much like not raising AA lowers your expectancy in poker. so i think both worlds can exist: one, taking into consideration your overall correlated risk (system wise/portfolio wise), and two knowing when it all lines up to put on large positions.

i agree, max amount of bet is subjective... but i also think there is some guidelines of objectivity that can be hit on. like, don't be stupid and risk 2% of your net worth.

i don't think it's necessary to agree on objective success, but if you're communicating and defining your risk it's pretty easy to get a sense of what kind of returns that person is going to see (eg. low sharpe high returns, high sharpe consistent returns, etc). what's valuable for me is to see how others who actually trade are approaching it. like some of the guys on the pl thread. would be killer to have rearden chime in on this again, i'd love to see the risk profile there.

mike, i have one question that wasn't clear from your posts. typically are you trading with fixed risk% and then betting larger on exceedingly ripe trades? or does it always sway based on trade expectancy?

i've just recently started to experiment with larger percentage bets for higher expectancy trades. it took me awhile to mechanically define what those were within my strats, but it's paid off well. i'm still toying with risk levels though (ie how much for big bets, etc). this is an endless topic and a really good one, if the noise stays to a minimum.

Sorry,no hostility was intended,but I do think Mike was way too judgemental and whether someone trades for a living or not,really isnt at the crux of the matter..Moving on....

We need to get past the bickering and try to make this a more meaningful learning experience.there have been many posts which contradict one another,and i would like to see if we can come to a "meeting of the minds"....

It appears that most of the posters are discretionary in nature,but have a systematised approach.

It appears the main basis of contention is the hard coded 2% of equity risk.Some risk 2% of net worth per trade,and others seem to trade a "risk capital" pool.

Mike is the most interesting of the group as he appears to follow the rules,but knows when to break them...

Lets try yo form a base and build from there

 

[LondonUSTrader]

Quote from taowave:

Sorry,no hostility was intended,but I do think Mike was way too judgemental and whether someone trades for a living or not,really isnt at the crux of the matter..Moving on....

We need to get past the bickering and try to make this a more meaningful learning experience.there have been many posts which contradict one another,and i would like to see if we can come to a "meeting of the minds"....

It appears that most of the posters are discretionary in nature,but have a systematised approach.

It appears the main basis of contention is the hard coded 2% of equity risk.Some risk 2% of net worth per trade,and others seem to trade a "risk capital" pool.

Mike is the most interesting of the group as he appears to follow the rules,but knows when to break them...

Lets try yo form a base and build from there

I won't address any of the negative aspects of this thread as we could keep going around in circles on that. I am partly responsible for the negative dialogue as I probably shouldn't have called Mike's post silly, on reflection. However, I stand by all of my other comments.

Here's my take on Mike. I don't like his attitude at times. However, some of his posts are of excellent value and make some very good points.

Regarding my own background, I have been a broker and a trader of OPM and my mine own money for nearly 10 years. I am a relatively new day trader as I have only been doing that for 3 years. Daytrading IMHO is far more difficult than longer term trading. It has taken me 3 years to develop a system that works consistently in the ES. So people can think what they want, but it is my belief experience has taught me a little bit about the market and trading. I also have posted a couple of live calls in some ES journals recently. Generally speaking I only post when I think it will add value.

Now, trying to keep moving forward and positive here are some thoughts on position sizing.

(1) There is an argument to use position sizing in an aggressive way from time to time. Let's say for example, you trade 3 setups that overall win 60% of the time. But, one of these has a 95% probability of success you might be willing to risk 10% of your net equity on the very high probability trade, especially if it doesn't occur that often. That would make sense. However, I would only recommend aggressive tactics like that to experienced traders once you have a track record of profitability.

(2) In my research on money management tactics like Kelly etc I liked Larry Williams formula best. I did, however, modify it slightly and used maximum drawdown instead of maximum loss. I thought this was a better approach for me.

(3) There are a few other position sizing tactics that I know some traders use so I'll offer them as information:

(a) Volatility: Reduce size during low volatility times and increase size during high volatility times. For example, I know some traders who reduce their size during August and Mid December because historically these are times of low volatility in the ES.

(b) Trend: The overall market conditions influence your position sizing. Some traders will increase position size on longs when we are an in uptrend in the overall market and vice-versa for shorts in downtrend. The reason for this is that there should be overall more profits when your trades are also on the right side of the market.

(c) Seasonals: In all markets there are seasonal factors causing from time to time the long or short side to be favoured at different times of the year. In the ES, late October to Mid November is a very Bullish time of year. So, I know some traders during this high probability time to increase their size on longs so they are in accordance with the overall market conditions.

Cheers.