Van Tharp's Position Sizing Game

You start with 10k at Level 1 and work with that.

Since it was just a game, drawdowns be dammed, I just maxed out the risk at 4% per trade.
(Kept all the trades and balances on a spreadsheet)

Finished level 1 at 23k.
Started level 2 at 23k and finished up at 39k
Started level 3 at 39k but by trade 40, the game halted me saying I was too lucky because I was already at 233k. Never got to finish that level.

What I did learn from this is that if you risk only 0.5%, then you'll never get the big returns you are expecting. Even the game will prompt you if your risk is too low. Your basically treading water with such a low risk tolerance
 
L943973 said:
What I did learn from this is that if you risk only 0.5%, then you'll never get the big returns you are expecting.
More...

Whoever said risk only .5%, or 1%, or 2% of your account on a trade...is stupid. And people who follow that general, cliche, common, textbook rule are stupid. That's a very scared, defensive, rule for people who don't know nothing, and are purely dumb luck gambling.
 
Be careful with blanket statements.

The optimal amount to risk on any given trade depends (rather dramatically) on the distribution of profits and losses that underlie that strategy.

There are cases where you can make more money (not just higher risk-adjusted return) by risking less on each trade. (An example of this follows.)

There are other cases where it is best to risk more. It really depends.

As an exercise, take the following game. You start with $100. You decide in advance what percent of your stake you are going to bet on each flip of a coin. If it comes up heads, I pay you double what you bet (eg: you bet $5 and get heads -> you get your $5 back plus another $10). If it comes up tails, I take what you bet (eg: you bet $5 and get tails -> you lose your $5). Note that if you choose 5%, for example, then you bet 5% on each flip... so if your stake grows to $200, you are now committed to betting $10 on each flip.

This is obviously a very good game to play; assuming a fair coin the "odds" are clearly in your favour. Nevertheless, the 'best' fraction of your bankroll is not just "as much as possible." If you bet everything, one tails and you lose everything. The question is this: if your objective is simply to maximize your winnings after some very large number of tosses, what is the optimal fraction to bet on each flip? Secondly, if your objective is to maximize something else (eg: sharpe, etc) what is the optimal fraction to bet?

Once you can answer this, use the distributions of profits and losses from whatever strategy you are using. You might be surprised by the results.

....Or maybe not, who knows? After all, I have no clue how "you" trade. But what is optimal for one strategy is not what is optimal for another... and I'm not even talking about differences in objectives, risk tolerance, time horizon, etc, etc from person to person.
 
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MacBookProHo said:
Whoever said risk only .5%, or 1%, or 2% of your account on a trade...is stupid. And people who follow that general, cliche, common, textbook rule are stupid. That's a very scared, defensive, rule for people who don't know nothing, and are purely dumb luck gambling.
More...

0.5, 1 or 2% is fine for big accounts and for those already wealthy. You don't want to blow up a big account, betting 5% or 10% etc.

For pikers with small accounts, like 5K or 10K, you can bet bigger, because 2% is just $100 or $200. So you might want to bet 5% or more. And if you blow up its no big deal. You can earn that kind of money back from your day job in a few months.
 
L943973 said:
You start with 10k at Level 1 and work with that.

Since it was just a game, drawdowns be dammed, I just maxed out the risk at 4% per trade.
(Kept all the trades and balances on a spreadsheet)

Finished level 1 at 23k.
Started level 2 at 23k and finished up at 39k
Started level 3 at 39k but by trade 40, the game halted me saying I was too lucky because I was already at 233k. Never got to finish that level.

What I did learn from this is that if you risk only 0.5%, then you'll never get the big returns you are expecting. Even the game will prompt you if your risk is too low. Your basically treading water with such a low risk tolerance
More...

That’s not true.
You can make crazy returns risking only 0.5%.

Example :

Bankroll 100,000$
Risk 0.5% = 500$

Buy @ 100
Stop loss @ 99
Position size 500$ / 1 = 500 shares

Stock move up 5% to 105
You’ve made 2500$ or 2.5% on a 5% move.

Risking only 0.5% …
While the position was 50% of your account.
 
Businessman said:
0.5, 1 or 2% is fine for big accounts and for those already wealthy. You don't want to blow up a big account, betting 5% or 10% etc.

For pikers with small accounts, like 5K or 10K, you can bet bigger, because 2% is just $100 or $200. So you might want to bet 5% or more. And if you blow up its no big deal. You can earn that kind of money back from your day job in a few months.
More...

No it’s not fine.
For most, the tiniest exposure is bad.
Why ? Because they have no edge.

The more you bet. The more you lose.
Beginners are way over leveraged.
Under betting should be finer.

Stay in the game long enough just to learn.
That should be the goal #1

Leverage will bust even a profitable strategy.
 
By the way you can find kelly criterion bet sizing calculators online. It tells you how much to risk to maximize the growth of your returns over time. Based on the expectancy.

Most bet half kelly because of errors and deviations around the statistics.

Over Betting leads to ruin 100% of the time.
 
MacBookProHo said:
Whoever said risk only .5%, or 1%, or 2% of your account on a trade...is stupid. That's a very scared, defensive, rule for people who don't know nothing, and are purely dumb luck gambling.
More...
%%
Depends on the market.
I could exchange some home improvement material for bid price[as long as i seldom did that]
They had a right o charge me a 10% restock fee, but did not for good commercial accounts.
So i would not quarrel with CME rule\ 20% is reckess[stupid];
on that cash business i could risk much more/ so it depends on market + how much time you may average from a blow up or bankruptcy.
Blowing up an account 2 or 3 time may prove one is trying to do something the market is not giving:D:D
 
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