Van Tharp's Position Sizing Game

murray t turtle said:
:D:D
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A trader cannot accomplish anything serious in the market by risking just 1% of their account on a trade. Good riddance that is low and very defensive/scared, and for people who don't know what they are doing.

If I have a certain conviction hypothesis, I'll put in way more than just 1% or 2% of my account into that trade. And watch that position like a hawk. If I win, great...if I lose, no big deal, I minimized the trade loss. My reward:risk ratio, vitally, is greater than 1:1....so I'm confident I'll survive, and thrive.

George Soros basically went all in in his famous 1992 trade that broke the Bank of England. I admire an intelligent man, with conviction and backbone, and boldness. If you want defensive, conservative and impotent....stop trading and just invest in a sleepy mutual fund.

....Elite Traders....that sounds laughable. I haven't seen anything that can be considered 'elite' here, not even close, ever.
 
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If you have high confidence about a set-up/trade I wouldn't worry about what % of your account to allocate on that trade,just keep a close eye on your buying power. I've seen Kullamagi with as many as 15 trades going at once and wanted to take on more but couldn't because he was out of buying power. And with 90 mil in his trading account(s) that's a lot of buying power. (360 mil intraday,180 mil overnight hold?)
 
MacBookProHo said:
George Soros basically went all in in his famous 1992 trade that broke the Bank of England.

....Elite Traders....that sounds laughable. I haven't seen anything that can be considered 'elite' here, not even close, ever.
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George Soros averaged about 20% per year.

That is hardly elite by your own definition as you ridicule that kind of performance here on a daily basis.

Risking just 2% of the account it is possible to average 100% a year with a good trading method.

Is that kind of return not good enough for you?
 
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Businessman said:
Risking just 2% of the account it is possible to average 100% a year with a good trading method.

Is that kind of return not good enough for you?
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If you truly have a good trading method, or understanding and skill, then ramp it up....have some confidence, faith, conviction and backbone in yourself and bet more....,

Imagine how much more your overall profit would be if your market bets were much greater than just 1% of your account,

But the thing is, like most people, I'm assuming you're just basically randomly gambling with no understanding and being right 50% of the time, with a 1:1 risk:reward ratio getting nowhere flat. That's why you're so defensive/scared to grow.
 
MacBookProHo said:
If you truly have a good trading method ... then ramp it up
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I guess you're right. Of course, it completely depends on one's objectives, tolerance for risk, etc.

I wrote a couple lines of code to reply to you and realized that if (after commissions, slippage, etc, etc) someone really has a strong edge (or simply "good" method as you call it ;)) then it may be worth ramping it up.

Code included below for the curious. Lots of assumptions embedded in it (eg all wins are the same amount and all losses are the same amount), but it's a decent starting point for someone who has never looked at simulating asset allocation before. It's written in R which, although not the most popular, is still a good statistical software package that is free to download and use. https://www.r-project.org/

Code: 
N = 20 # Number of simulations
n = 10 # Number of time periods
p = 0.55 # Probability of win (eg 0.55 = 55% wins; 45% losses)
w = 1.0 # Percent on each win (eg Wins are 1.0%)
l = 0.9 # Percent on each loss (eg Losses are 0.9%)
A_0 = 100 # Starting amount
f = 0.5 # Fractional bet size on each trade (assumes compounding) (eg 5% of account bet each trade)


for(index1 in 1:N) {
  A = A_0 # Set account size, A, to A_0 for each simulation
  results = rbernoulli(n, p)
  for(index2 in 1:n) {
    if(results[index2] == TRUE) { # ie winning trade
      A = A + f * (w/100 * A)
    } else { # ie losing trade
      A = A - f * (l/100 * A)
    }
  }
  print((A/A_0-1)*100) # Print the percent gain or loss on this simulation
}
 
Statistical Trader said:
I wrote a couple lines of code to reply to you and realized

Code: 
N = 20 # Number of simulations
n = 10 # Number of time periods
p = 0.55 # Probability of win (eg 0.55 = 55% wins; 45% losses)
w = 1.0 # Percent on each win (eg Wins are 1.0%)
l = 0.9 # Percent on each loss (eg Losses are 0.9%)
A_0 = 100 # Starting amount
f = 0.5 # Fractional bet size on each trade (assumes compounding) (eg 5% of account bet each trade)


for(index1 in 1:N) {
  A = A_0 # Set account size, A, to A_0 for each simulation
  results = rbernoulli(n, p)
  for(index2 in 1:n) {
    if(results[index2] == TRUE) { # ie winning trade
      A = A + f * (w/100 * A)
    } else { # ie losing trade
      A = A - f * (l/100 * A)
    }
  }
  print((A/A_0-1)*100) # Print the percent gain or loss on this simulation
}
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So what's the bottom line to that magical, Godly, divine, code....are you a millionaire in the market....or a hundred thousandaire....or a thousandaire....or a hundredaire....or just full of air,

As far as I'm concerned, the Holy Grail...ultimate skill....in the market...is being able to understand and trade the daily S&P. Day in, day out. Grow and compound an account. Options are the true plutonium in this picture.
 
MacBookProHo said:
Options are the true plutonium in this picture.
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Let's suppose that using options you have a 55% win rate and the winners give you 75% and the losers cost you -50% (net, after accounting for all costs). What fraction of your account would you bet on each trade, assuming you compound on each new entry (ie keep that fraction fixed)?
 
Statistical Trader said:
Let's suppose that using options you have a 55% win rate and the winners give you 75% and the losers cost you -50% (net, after accounting for all costs). What fraction of your account would you bet on each trade, assuming you compound on each new entry (ie keep that fraction fixed)?
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All you need to know is your average Win gain %, and your average loss/stop loss % per trade. If you can consistently sustain that at a relatively high level, you will print money in the market.
Doesn't matter if you decide to use a small portion of your account, or a much larger portion.

I hate technicalities and code and complications with trading, and in life. Your account will grow if you understand what you are doing.

I knew today would generally be an Up/flat day, but not down. If you bought around 9:42 and had the balls and foresight to hold it till close....you'd be smiling right now
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Statistical Trader said:
Let's suppose that using options you have a 55% win rate and the winners give you 75% and the losers cost you -50% (net, after accounting for all costs). What fraction of your account would you bet on each trade, assuming you compound on each new entry (ie keep that fraction fixed)?
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I don't know much about options, but with those numbers, 25%
 
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