Do you use different sizes for differnt trades?

[Rossini]

I'm just wondering how people determine their position size? Obviously we all know that we should risk no more than 5% of our account per trade. Currently i'm risking from 0.5% to 2%.

Is it advisable to set the size of your position relative to the stop loss for that specific trade? Usually my stops are between 20 and 50 pips from entry.

So for example- if I where to take a position on eur usd and use a tight 20 point stop I could trade £20 per pip but if I where to trade gbp usd and set a atop of 40 I could lower the size to £10 per pip. This way the risk on the account is the same even though the stop distances are different.

At the moment I keep the size of the trades the same but let the stop level vary.

 

[timsk]

At the moment I keep the size of the trades the same but let the stop level vary.

Hi Rossini,
Not a good idea, IMO. I don't trade FX so I don't know how the volatility varies between one pair and the next. However, doing what you suggest with U.S. equities would be totally disastrous. It's essential to take volatility into account and vary your position size and stop placement accordingly. By way of example, take a gander at the two tech' giants MSFT and GOOG. A 10 point stop on MSFT might be fine, but it'll virtually guarantee you'll be stopped out every time on GOOG (unless you're VERY good or VERY lucky). What you're suggesting will produce the opposite result from the one you want. So, in the case of the two stocks I've mentioned, you'll end up with a tight stop on GOOG and a far off long stop for MSFT; not what you want at all. Fortunately, there's the perfect tool to assess the volatility of any instrument: Average True Range (ATR). If this isn't clear, let me know and I'll throw up some charts to illustrate what I'm banging on about. Once I got my head round this and started to adjust my position size and stop placement according to the volatility of the stock, the beneficial results were instantaneous. A real eureka lightbulb moment and they're few and far between!
Tim.

 

[Rhody Trader]

If you're fixing the risk per trade that you're taking, and the distance of your negative exit point from your entry point varies, then by definition you have to vary your trade size.

 

[foredog]

I always trade different sizes, if you've got a small stop on a trade then you think it's got a good chance of going your way so put your money where your mouth is.

 

[porph]

I have set sizes for different instruments or commodities and I scale into and out of the trade according to the situation. In my opinion when you know you are right you have to really put your foot down and increase size to make the most of the high prob set ups. Obviously the rest is determined by account size and the volatility.

 

[Rossini]

Hi Rossini,
Not a good idea, IMO. I don't trade FX so I don't know how the volatility varies between one pair and the next. However, doing what you suggest with U.S. equities would be totally disastrous. It's essential to take volatility into account and vary your position size and stop placement accordingly. By way of example, take a gander at the two tech' giants MSFT and GOOG. A 10 point stop on MSFT might be fine, but it'll virtually guarantee you'll be stopped out every time on GOOG (unless you're VERY good or VERY lucky). What you're suggesting will produce the opposite result from the one you want. So, in the case of the two stocks I've mentioned, you'll end up with a tight stop on GOOG and a far off long stop for MSFT; not what you want at all. Fortunately, there's the perfect tool to assess the volatility of any instrument: Average True Range (ATR). If this isn't clear, let me know and I'll throw up some charts to illustrate what I'm banging on about. Once I got my head round this and started to adjust my position size and stop placement according to the volatility of the stock, the beneficial results were instantaneous. A real eureka lightbulb moment and they're few and far between!
Tim.

Thanks for all the replys!

I do change the stop placement according to how volitile the pair is acting. Basicly I try to put my stop at some point where I can say that I was clearly wroung with my trade if it get hit. On the gbp jpy (V volatile) I can use about a 50 stop, but on the eur usd (not so vol) I can get away with around a 20 stop.

What I dont know is- is it better to change the posision size in relation to the stop loss so I am risking a set % of my account each time? The only way I can see this to be a problem is that I could end the day up in points but down in money???

 

[new_trader]

I always trade different sizes, if you've got a small stop on a trade then you think it's got a good chance of going your way so put your money where your mouth is.

So, if you are taking a guess you use a wider stop?

 

[timsk]

What I dont know is- is it better to change the posision size in relation to the stop loss so I am risking a set % of my account each time? The only way I can see this to be a problem is that I could end the day up in points but down in money???

Hi Rossini,
I'll explain what I do, which may not be appropriate to you and your circumstances and, indeed, others may have suggestions as to how I can improve my system. I trade U.S. stocks and the volatility between them can vary enormously. I use ATR to assess the volatility and have a sliding scale that tells me the quantity of shares to trade and where to place my stop. So, regardless of whether I trade 1,000 shares or just 100, if my stop is hit in either case I'll only lose the same fixed percentage of equity (less than 0.5%). I've structured it in such a way that the stop is a long stop - an emergency stop. Nine times out of ten I'm out of the trade before the stop triggers, as I'm of the school of thought that says get out asap and don't wait for the stop to be hit. Yes, I do close out some trades for a loss which then move into profit which is annoying but, on the plus side, I keep the losses small which is good for my head! Horses for courses. Your point about being up in points but down in money is correct, although the reverse is also true.
Tim.

 

[porph]

So, if you are taking a guess you use a wider stop?

I thought it was a slightly odd statement. I would have perhaps said, if you are using a tight stop (regardless) then you perhaps increase your position if your are more confident.

 

[new_trader]

I thought it was a slightly odd statement. I would have perhaps said, if you are using a tight stop (regardless) then you perhaps increase your position if your are more confident.

More confident of what? Being right? That begs the question, why enter a trade when you are not confident?

 

[porph]

for fun?

 

[Rossini]

Hi Rossini,
I'll explain what I do, which may not be appropriate to you and your circumstances and, indeed, others may have suggestions as to how I can improve my system. I trade U.S. stocks and the volatility between them can vary enormously. I use ATR to assess the volatility and have a sliding scale that tells me the quantity of shares to trade and where to place my stop. So, regardless of whether I trade 1,000 shares or just 100, if my stop is hit in either case I'll only lose the same fixed percentage of equity (less than 0.5%). I've structured it in such a way that the stop is a long stop - an emergency stop. Nine times out of ten I'm out of the trade before the stop triggers, as I'm of the school of thought that says get out asap and don't wait for the stop to be hit. Yes, I do close out some trades for a loss which then move into profit which is annoying but, on the plus side, I keep the losses small which is good for my head! Horses for courses. Your point about being up in points but down in money is correct, although the reverse is also true.
Tim.

So if I have about 14k in the account. If I where to have a 10pt stop then I could trade at £14 per pip. If a 20 pt stop, I should trade at £7 per pip. If a 40 pt stop then I should do £3.5 per pip and so on.

This would mean I was risking the same % of my account each time- 1%.

I could still do what I do now e.g try to place my stop above resistance or below support and use the best fitting % wise stop. Does this sound good?

This has the advantage of letting me get into more setups, some of which I would not normally take as I would see the stop needed to be 'too far'.

 

[Rossini]

Money Management-Risking 1% of account per trade

80 pt stop loss
£1.70 per point
75 pt stop loss
£1.80 per point
70 pt stop loss
£2.00 per point
65 pt stop loss
£2.20 per point
60 pt stop loss
£2.30 per point
55 pt stop loss
£2.50 per point
50 pt stop loss
£2.80 per point
45 pt stop loss
£3.10 per point
40 pt stop loss
£3.50 per point
35 pt stop loss
£4.00 per point
30 pt stop loss
£4.60 per point
25 pt stop loss
£5.60 per point
20 pt stop loss
£7.00 per point
15 pt stop loss
£9.30 per point
10 pt stop loss
£14.00 per point

 

[timsk]

I could still do what I do now e.g try to place my stop above resistance or below support and use the best fitting % wise stop. Does this sound good?

Hi Rossini,
Yes, I believe your idea is fine provided you factor two things into the equation:
A) The volatility of the instrument. Areas of S/R can encompass 3 dollars or more on a stock like GOOG but only 30 cents or so MSFT. So, placing your stop "above resistance or below support" is an art all of its own and if your position size is too big relative to the volatility of the instrument - you'll be in quagmires of brown sticky stuff. You could have a win : loss ratio of 90% but, get the stop placement and position size wrong on GOOG, and the profits you've made on the winning trades could be wiped out in a flash.
B) The probability of the trade being successful against the stop being hit. If the probability of success is low, risk less. I'm always happy to reduce my position size relative to what my model indicates - but not the other way around. Yes, this does mean that I make less if the trade is profitable, but that's not my primary concern. Objective No. 1 is always to lose as little as possible and let the profits look after themselves.
Tim.