When to switch from fixed ratio to fixed fractional?

[joesan]

Hi, I am considering a MM plan for a small test account. The motive is to adopt fixed ratio position sizing when the account is small , to take advantage of the higher speed of expansion that fixed ratio can bring, and then switch to fixed fractional when the account has built up some size and the fixed fractional method has caught up with fixed ratio in terms of expansion speed.

So at what point should I switch from fixed ratio to fixed fractional ? For example , if the risk percentage of the fixed fractional method is 2%, then does it mean I should make the switch when I start to risk more than 2% with the fixed ratio method ?

 

[rcanfiel]

Quote from joesan:

Hi, I am considering a MM plan for a small test account. The motive is to adopt fixed ratio position sizing when the account is small , to take advantage of the higher speed of expansion that fixed ratio can bring, and then switch to fixed fractional when the account has built up some size and the fixed fractional method has caught up with fixed ratio in terms of expansion speed.

So at what point should I switch from fixed ratio to fixed fractional ? For example , if the risk percentage of the fixed fractional method is 2%, then does it mean I should make the switch when I start to risk more than 2% with the fixed ratio method ?

I would say that this is an illusion. Fixed ratio only looks good early on, due to picking arbitary $ value contract add-ons - $5K, $10K, whatever. Just do fixed fractional, and stop reading books. lol...

 

[MGJ]

Presumably you have simulated this; what do the simulations say?

More position sizing ideas to try out in simulation:

• Always trade whichever is larger: FF position size, or FR position size
• Always trade whichever is smaller: FF size or FR size
• Average together the FF size and the FR size, and trade that average number
• Pick a number X (like: X=3) and when the dollars in your account have grown by a factor of X, switch from one to the other
• Pick a number of months M (like: M=24) and when you have traded one of them for M months, switch to the other
• Pick a number of contracts C (like: C=100) and when you start to trade position sizes greater than C contracts, switch to the other sizing method

I'm sure you will be able to think of others.

 

[rickty]

Quote from joesan:

Hi, I am considering a MM plan for a small test account. The motive is to adopt fixed ratio position sizing when the account is small , to take advantage of the higher speed of expansion that fixed ratio can bring, and then switch to fixed fractional when the account has built up some size and the fixed fractional method has caught up with fixed ratio in terms of expansion speed.

You realize that fixed ratio has the potential of quickly building up a small account because it takes on more risk initially. An alternative is to simply use fixed fractional initially set at a higher risk level then to reduce this risk as the account builds. You can quite precisely tailor the risk profile. (This idea was actually presented by a guy called Mark Johnson; if you do a web search you might be able to find his original writeup).

 

[joesan]

Yes, I am testing different position sizing algorithm. I read MJ's posts several years ago but seems cannot find the specific one you mentioned.
He used to have a site, (or right?) but seems I cannot find it either.

Quote from rickty:

You realize that fixed ratio has the potential of quickly building up a small account because it takes on more risk initially. An alternative is to simply use fixed fractional initially set at a higher risk level then to reduce this risk as the account builds. You can quite precisely tailor the risk profile. (This idea was actually presented by a guy called Mark Johnson; if you do a web search you might be able to find his original writeup).