Positionsizing when starting to trade a new system

G

giggollo

Hi all,

I would like to get some feedback on how to size my positions when starting to trade a new mechanical system which is historically profitable. I want to start trading the system but dont want to get hit with a drawdown that may be hard to stomach early on. Assume a 100K account with 400K Daytrading buying power(DTBP). Normally once i build some profits i would start trading with the full DTBP and since I would have built some profits i would be able to stomach the expected 10% drawdown on the account (ie it wouldnt be eating into initial capital). I am willing to trade with smaller size for a longer time until i have built some profits and ramp up slowly, and im looking for ideas on how other traders "ramp up" . Im looking for ideas like, "i would start with positionsize of 1% of account value and double my positionsize every week i am profitable" or "i would start with 1% account value and double my positionsize after i have added 10% in profits to my account value"


Thanks in advance
g
 
I would get my original 100K out in cash as soon as I could before increasing leverage, but thats just me.

I would then use that cash to start the cycle all over again in a completely different market to diversify with...

Michael B.
 
Yes, Yes...agreed that too...:) FRM tamed version, Prevails way is very good too..

Quote from Prevail:

Assume a maxdd twice that historical. Have you looked into fixed ratio position sizing?
More...
 
Thanks guys,

Electric: can you elaborate on what you mean by FRM tamed version please? Is this the technique you actually use to ramp up your size as you start trading a new mechanical system?

Prevail: Fixed ratio looks interesting. Do you have any actual experiences using this technique to size positions when starting to trade a new system? Why do you prefer this system to say fixed fractional?

(The reason im intersted is because i tried to start trading my system on 2 separate occasions in the last month, and each of those 2 days i had a losing day and stopped trading it. Looking at simulation results later, those 2 days turned out to be the 2 biggest losing days for the system this month, and had i continued to trade it throughout the month (instead of chickening out) i would have been in the green.)

Thanks in advance,
g
 
A componet in FRM is DD. Prevail suggested doubling it. You will get a slower acceleration that way. It's Tamer.

Read Ryan Jones...


Quote from giggollo:

Thanks guys,

Electric: can you elaborate on what you mean by FRM tamed version please? Is this the technique you actually use to ramp up your size as you start trading a new mechanical system?

Prevail: Fixed ratio looks interesting. Do you have any actual experiences using this technique to size positions when starting to trade a new system? Why do you prefer this system to say fixed fractional?

(The reason im intersted is because i tried to start trading my system on 2 separate occasions in the last month, and each of those 2 days i had a losing day and stopped trading it. Looking at simulation results later, those 2 days turned out to be the 2 biggest losing days for the system this month, and had i continued to trade it throughout the month (instead of chickening out) i would have been in the green.)

Thanks in advance,
g
More...
 
Quote from giggollo:

Hi all,

I would like to get some feedback on how to size my positions when starting to trade a new mechanical system which is historically profitable. I want to start trading the system but dont want to get hit with a drawdown that may be hard to stomach early on. Assume a 100K account with 400K Daytrading buying power(DTBP). Normally once i build some profits i would start trading with the full DTBP and since I would have built some profits i would be able to stomach the expected 10% drawdown on the account (ie it wouldnt be eating into initial capital). I am willing to trade with smaller size for a longer time until i have built some profits and ramp up slowly, and im looking for ideas on how other traders "ramp up" . Im looking for ideas like, "i would start with positionsize of 1% of account value and double my positionsize every week i am profitable" or "i would start with 1% account value and double my positionsize after i have added 10% in profits to my account value"


Thanks in advance
g
More...
giggollo,
If you still have to ask this, this means that you don't yet fully understand your "mechanical system".
What good is a "historically profitable system" if it has a non-negligable probability of driving you toward bankruptcy? Your question indicates that you don't have an answer. You are not ready yet to trade your "historically profitable system".
Of course, like always many will post you some kind of an answer. Think about the 95% losers tale though!
nononsense
:(
 
Thanks for your reply, nononsense. Perhaps i was not clear in my original posting. Let's assume the system is historically profitable and has no probability of driving you toward bankruptcy. When you start trading the system in realtime, you still dont want to start trading it with your full size (or with full margin) because there will inevitably be some issues u need to address psychologically (eg dealing with losing days) and also implementationwise and executionwise. Even if the system is profitable if you have bad luck and get a sequence of losing days initially, it can be demoralizing and cause you to stop trading the system just when it starts having some winning days. This is what I want to avoid but i want to have a systematic way of increasing my positionsize as i gain more confidence (actual profits) in the system. All feedback much appreciated

g

Quote from nononsense:

giggollo,
If you still have to ask this, this means that you don't yet fully understand your "mechanical system".
What good is a "historically profitable system" if it has a non-negligable probability of driving you toward bankruptcy? Your question indicates that you don't have an answer. You are not ready yet to trade your "historically profitable system".
Of course, like always many will post you some kind of an answer. Think about the 95% losers tale though!
nononsense
:(
More...
 
Quote from giggollo:

Thanks guys,

Prevail: Fixed ratio looks interesting. Do you have any actual experiences using this technique to size positions when starting to trade a new system? Why do you prefer this system to say fixed fractional?

(The reason im intersted is because i tried to start trading my system on 2 separate occasions in the last month, and each of those 2 days i had a losing day and stopped trading it. Looking at simulation results later, those 2 days turned out to be the 2 biggest losing days for the system this month, and had i continued to trade it throughout the month (instead of chickening out) i would have been in the green.)

Thanks in advance,
g
More...

I've always used Fixed Fractional but if you are wanting to ramp up and use the house's money then fixed ratio would be the way to go. I'm not surprised at all the two times you tried trading the system lost money. The market knows our weaknesses :) ...
 
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