Money Management Position-Sizing Plan

[new_trader]

Totally wrong mindset.

-Trader 'A' says s/he makes an average of $1000/day trading the ES contract

-Trader 'B' says s/he 'only' makes an average of $100/day trading the ES contract

Who is the better trader?

 

[yacarob1]

Laptop

Re your post #18, I appreciate your point and will answer in full later.

But at the moment I am totally engrossed in the cricket...England vs Australia.

Cheers

 

[new_trader]

No mention of post #1 Can anyone tell me what they think of the sizing plan and would they use it?

Laptop1,

Unless I am misreading it, why is your stepdown level different to your step up level?

I prefer the fixed ratio method:

Equity required to trade previous contract size + ((number of contracts-1) x delta) = Next level.

Eg/ starting with a base of $10,000 for 1 contract and a delta of $5,000:

Contracts= Equity Required $

1= 10,000

2= 15,000

3= 25,000

4= 40,000

5= 60,000

6= 85,000

etc

As the account grows the number of contracts traded becomes less aggressive.

from

http://www.online-futurestrading.com/Online-Trading-Systems/Money-Management.htm

 

[laptop1]

new trader

The method I give is for a trader who had a good trading method, it will build an account very quickly. its not low risk at all, its for day traders who can control losses and keep them fixed. the method I give is based on trading the ER2 with a stop of 8 ticks on all trades.1 lot =$10..

..........................................Money Management Position-Sizing Plan

Level...... Lot Size..........Min Account ........Min Account ............Stop on any one......Risk on Account
.................=$10................level to enter......before demoted...........Trade...................at different levels
..........................................a trade.................to the previous level.
.....................$..........................$................................$.................................$

0)................................................................$.0.000
1). ...... 1...lot = $10.........$ 2,200............$ 1,500................................$ 80 .................................4%
2). ...... 2 ..lots = $20 .......$ 4,000............$ 2,400 ...............................$ 160................................4%
3). ...... 4 ..lots = $40 .......$ 8,000............$ 4,800................................$ 320................................4%
4). ...... 7 ..lots = $70 .......$ 15,500..........$ 9,500...............................$ 560................................4%
5).... ... 9 ..lots = $.70.......$ 25,500..........$ 18,200.............................$ 720.............................2.8%
6)...... 12 .lots = $120......$ 42,000..........$ 32,000..............................$ 960............................2.3%
7)...... 20 .lots = $200......$ 72,000..........$ 55,000..............................$ 1,600.........................2.3%
8)..... 31 .lots = $310......$ 115,000........$ 85,000..............................$ 2,600........................2.3%
AND SO ON.[/QUOTE]

 

[new_trader]

Laptop1,

That is fair enough. What I am asking is why/how did you come up with the concept of different amounts to enter a trade and being demoted?

eg/ Number 4 @ 7 lots needs $14K to start but $8K to go back to 4 lots?

Why would you continue trading 7 lots with $13K on the way down when you used 4 on the way up?

IMHO you should go back to 4 when you drop below $14K

 

[yacarob1]

Laptop

I am afraid that my engrossment with the cricket is falling in direct proportion to the rate of England's loss of wickets and at the moment that is quite quickly.

I apologise if I gave you the impression that my little Q&A list was a set of rigid rules whcih I stick to through thick and thin.

They are not rigid rules...more an example of the way I think and look at things.

Alas, I do not always achieve a profit of US$ 1,000 per day and if I do not, then I do not really care because I generally make enough anyway not to have to care.

But to be more specific, I sometimes vary my risk % if I feel able to accept a greater degree of financial risk.

Stops can also be somewhat more or less than 25 cents, resulting in a range of position sizes.

On a good day I may get off to a flyer and score a double dollar run in the first 30 minutes. Then I can pack up and go and have a few bevvies.

I like to think I trade cunningly by trading different types of stocks according to the daily conditions or even the time of day.

For example I might have a shot at trading Google ( GOOG ) during the quiet part of the trading day. eg. New York lunchtime.

Quite often with the trading slowing down it can be quite nice to trade GOOG which will still yield quite nice and relatively quick moves.

In short I try to mix things up a lot in order to maximise my daily earnings.

The ultimate objective of course is to hit the target as fast as possible because I do find trading rather boring and I don't enjoy screen watching from 2.30pm until 9.00pm.

For this reason I tend to trade higher value stocks ( > US$ 100 per share ) because they tend to move faster. This ties in well with my natural attribute of impatience and tends to mean that trades do not last too long....which is what I prefer.

Hope this answers your questions.

 

[laptop1]

Laptop1,

That is fair enough. What I am asking is why/how did you come up with the concept of different amounts to enter a trade and being demoted?

eg/ Number 4 @ 7 lots needs $14K to start but $8K to go back to 4 lots?

Why would you continue trading 7 lots with $13K on the way down when you used 4 on the way up?

IMHO you should go back to 4 when you drop below $14K

I made up this method quickly for a trader who PM me asking if one had a good method to trade, how could one build an account quickly by adding more to the next trade. I came up with this. I just changed the 14k trade to 15,500 and moved 8k up to 9.5k....

You stick to the rules. … i.e if you was trading the $25,500 on 9 lots and the account went to $18,200...you would know trade 7 lots till $25,500 was hit again.


..........................................Money Management Position-Sizing Plan

Level...... Lot Size..........Min Account ........Min Account ............Stop on any one......Risk on Account
.................=$10................level to enter......before demoted...........Trade...................at different levels
..........................................a trade.................to the previous level.
.....................$..........................$................................$.................................$

0)................................................................$.0.000
1). ...... 1...lot = $10.........$ 2,200............$ 1,500................................$ 80 .................................4%
2). ...... 2 ..lots = $20 .......$ 4,000............$ 2,400 ...............................$ 160................................4%
3). ...... 4 ..lots = $40 .......$ 8,000............$ 4,800................................$ 320................................4%
4). ...... 7 ..lots = $70 .......$ 15,500..........$ 9,500...............................$ 560................................4%
5).... ... 9 ..lots = $.70.......$ 25,500..........$ 18,200.............................$ 720.............................2.8%
6)...... 12 .lots = $120......$ 42,000..........$ 32,000..............................$ 960............................2.3%
7)...... 20 .lots = $200......$ 72,000..........$ 55,000..............................$ 1,600.........................2.3%
8)..... 31 .lots = $310......$ 115,000........$ 85,000..............................$ 2,600........................2.3%
AND SO ON.[/QUOTE]

 

[new_trader]

Laptop1,

I can see the table but I can't figure out the reasoning of having different step up/down levels. You have explained the fact that it does, but not why? What is the reasoning for trading 9 lots from $25,500 down to $18,200 (when you start trading 7 lots again) but trade 7 lots from $15,500 up to $25,500?

Lets say you have been fortunate and keep winning. You finally amass $15,500 so you start trading 7 lots. You keep winning and have now got $23,000 in the account. You must still trade 7 lots until you amass $25,500 and move to 9 lots, Correct?

Now, from that point, your luck turns. You are now down to $23,000. Do you keep trading 9 lots until you get down to $18,200!? If so, why? This is what I want to know, the why, the reasoning behind trading 7 lots at $23,000 on the way up and 9 on the way down. How does this work in favour of the trader?

 

[laptop1]

new_trader

The reason for different step/down levels is to keep you out of trouble you may have a bad run .Every level you go down you are reducing you risk in terms of money and when you are correct you add more contracts to make more money

So yes, you keep trading 9 lots until $18,200 is hit. and go back to 7 lots, You stay at 7 lots until $25.500 is hit again. The method is about making money as quickly as possible. but in trying to keep it relatively safe as one can, considering the aggressive adding in lot size over 8 levels.

I tell you what, lets see if you can make a plan, making $115.000 with a start capital of $2,200 based on 8 levels and see what you come up with.

Maybe some can come up with a better method please post, we could make a good method between as all....So the challenge is. To make $115,000 with a start bank of $2,200 of between 6 to 12 levels.

Cheers

 

[Grey1]

I think it better to diversify risk in the same way you diverify by market. I have been on a long road from fixed fracion, through fixed ratio and then back to fixed fraction. What I have found to be best bet is to have a number of risk systems that are run independently but together constitute a total volume for any trade. You need to analyse how a system behaves to work out how to best structure this however the end results can be far more effective than sticking to just fixed frac. You need both martigale and anti martingale components which are optimised somewhat just like any other parameters.

This is a quality advise for those who have to deal with market risk professionally .


well done

grey1

 

[jiggly]

I have a very simple method which I use to dictate how much capital to risk per trade,

first I identify the risk, where would I be placing my stop based on market dynamics that would give me the highest probability of it not getting hit, but as close to my entry as possible.

second I identify my target, where I would be exiting the trade should my call be correct and the trade is a profitable one.

calculate risk to reward from this.

if the risk : reward is 1:1 risk 1%
if 1:2 risk 2%
if 1:3 risk 3%

and so on....

as I am a forex trader and can trade flexi contracts I always buy enough units to not exceed my risk allocated to the trade.

it is very unlikely that I come across trades which yield more reward to risk than 1:3 but if I did, then based on these simple calculations I would vary my position size accordingly.

this works fantastically for me and others may find the same,

good luck to all

 

[new_trader]

new_trader

The reason for different step/down levels is to keep you out of trouble you may have a bad run .Every level you go down you are reducing you risk in terms of money and when you are correct you add more contracts to make more money

So yes, you keep trading 9 lots until $18,200 is hit. and go back to 7 lots, You stay at 7 lots until $25.500 is hit again. The method is about making money as quickly as possible. but in trying to keep it relatively safe as one can, considering the aggressive adding in lot size over 8 levels.

I tell you what, lets see if you can make a plan, making $115.000 with a start capital of $2,200 based on 8 levels and see what you come up with.

Maybe some can come up with a better method please post, we could make a good method between as all....So the challenge is. To make $115,000 with a start bank of $2,200 of between 6 to 12 levels.

Cheers

The challenge is complicated and cannot be constrained to one model because it depends on the trader’s progress. If a trader’s proficiency improves they will be able to trade more contracts with the same risk exposure without having to amass more capital.

Eg/ A trader starts with a realistic minimum capital of $5000 to trade the ES contract. They begin by risking around 2% of their capital, which is $100, or 2 points for 1 contract. After a few dozen trades and many hours of practice paper trading they improve their trade entries to the point where they can now use a 1-point stop distance with better performance than when they first began. This means that with $5000 they can now trade 2 contracts and still be risking only 2%. If they refine their entries further they may be able to move to a 0.5 point stop distance and trade 4 contracts with $5000 and still maintain a 2% risk.

 

[fibonelli]

I have a very simple method which I use to dictate how much capital to risk per trade,

first I identify the risk, where would I be placing my stop based on market dynamics that would give me the highest probability of it not getting hit, but as close to my entry as possible.

second I identify my target, where I would be exiting the trade should my call be correct and the trade is a profitable one.

calculate risk to reward from this.

if the risk : reward is 1:1 risk 1%
if 1:2 risk 2%
if 1:3 risk 3%

and so on....

as I am a forex trader and can trade flexi contracts I always buy enough units to not exceed my risk allocated to the trade.

it is very unlikely that I come across trades which yield more reward to risk than 1:3 but if I did, then based on these simple calculations I would vary my position size accordingly.

this works fantastically for me and others may find the same,

good luck to all

This is like hitting the home runs, picking the low hanging fruit or picking money from the floor
Given me further thought of my idea of varying trading size (see post #2).

 

[timsk]

This thread's been dormant for a while and is worth reviving IMO.

I have a very simple method which I use to dictate how much capital to risk per trade,

first I identify the risk, where would I be placing my stop based on market dynamics that would give me the highest probability of it not getting hit, but as close to my entry as possible.

second I identify my target, where I would be exiting the trade should my call be correct and the trade is a profitable one. calculate risk to reward from this.
if the risk : reward is 1:1 risk 1%
if 1:2 risk 2%
if 1:3 risk 3%
and so on....
this works fantastically for me and others may find the same,

Hi jiggly,
Your approach is interesting, especially given that you say it works "fantastically" for you. However, it strikes me as being counter intuitive. Given that the probability of any trade in any market has a higher probability of achieving a 1:1 risk:reward (RR) than it does a 1:2 or 1:3 or greater, then it strikes me that in effect, the smaller the probability of success (i.e. wide R:R ratio) the greater the amount of risk you are willing to assume? Therefore, logically, would it not make more sense to invert your figures to read like so:
If the R:R is 1:1, risk say 3%
If the R:R is 1:2, risk say 2%
If the R:R is 1:3, risk say 1%
If the R:R is 1:4, risk say 0.5%
and so on . . .
But perhaps I'm missing something?
Tim.

 

[timsk]

For this reason I tend to trade higher value stocks ( > US$ 100 per share ) because they tend to move faster. This ties in well with my natural attribute of impatience and tends to mean that trades do not last too long....which is what I prefer.

Hi yacarob1,
Please correct me if I'm taking your comments too literally but, given that you mentioned in your earlier post you have $50,000 trading capital, buying 500 shares of a $100 stock will commit all of your trading capital to just one trade. In the unlikely event - but possible nonetheless - that the stock is suspended mid trade, you're suddenly gonna need a large supply of nappies at hand! Plus Vodka and Valium. Assume the suspension is lifted and trading resumes, the price could have waterfalled 20%, 40%, 60% or more and suddenly your once healthy account doesn't look so good (assuming you're long). If you combat this exposure by trading much smaller size - say just 100 shares instead of 500 then, pro rata, you need the stock price to move 5 times as far in order to achieve your daily profit target. If you're willing to share your views on this, I'd be interested to know the measures you take to tackle the problem*.
Cheers,
Tim.
*Just to clarify, I'm referring to your risk and money management measures and not the management of nappies, drugs and alcohol. :cheesy:

 

[searchlight]

This thread's been dormant for a while and is worth reviving IMO.

Hi jiggly,
Your approach is interesting, especially given that you say it works "fantastically" for you. However, it strikes me as being counter intuitive. Given that the probability of any trade in any market has a higher probability of achieving a 1:1 risk:reward (RR) than it does a 1:2 or 1:3 or greater, then it strikes me that in effect, the smaller the probability of success (i.e. wide R:R ratio) the greater the amount of risk you are willing to assume? Therefore, logically, would it not make more sense to invert your figures to read like so:
If the R:R is 1:1, risk say 3%
If the R:R is 1:2, risk say 2%
If the R:R is 1:3, risk say 1%
If the R:R is 1:4, risk say 0.5%
and so on . . .
But perhaps I'm missing something?
Tim.

But then again... It is "easier" to achieve r/r: 1:1 if you start with the r/r: 1:3 possibility.
I would prefer jiggly's approach; because of the value it represents.

searchlight.

 

[johnyoga]

Day Trading & Position Sizing...

Hello Fellow Traders.

I day trade equities. This is how I position size:

1. $200K total leveraged bank ($50K of my money has 4-1 leverage)

2. Break up this into 10 potential pieces

3. I now have a maximum of $20K to use per trade

4. The first leg always starts with "bobber fishing" where I do 10 shares for all stocks I am interested in. This allows me to keep my pulse on many interesting stocks, but yet does not stress me at all, if any/all of them go sour on me.

5. I leg in with a third or half on those that are beginning to move in my favor.

6. As the trade goes further my way, I add the other 1/3 or 1/2...For the third-in method, add the last 1/3 if the trade still keeps going my way.

7. Peel out of the trade, or get all-out, depending on the momentum. All-out does not work for me, if I am using the trailing stop method, regardless of how wrong it seems by way of the anti-martingale strategy. I have watched too too many of my trades quickly reverse, knocking out most/all of my profits, and/or making me go negative on the darn thing, even though intially it was a bit profitable!

<<How I add, and when I peel out is dependent on the market mood (is it very volatile today, or rather quiet), the industry mood, and the stock's mood (this is third in line as a determinant of volatility).>>

8. Do not play trades in the same industry. Be mindful of how closely correlated my additional-add of another stock is to my current DT portfolio. If the add-in consideration is of the same industry, or exactly duplicates a trade I am already in, either don't use it, or replace the other highly correlated stock with it. In other words, sympathy plays are fine, just don't have multiple positions on that run, nearly lock-step with each other.

You see, in my view, current position sizing methods that I read are very silly. Let me explain:

$30 stock, and I want to risk $0.15...I have a $200K bank, and want to risk 2% on the trade. This means I have $4K ($200K x .02) to risk on a trade. $4K/$0.15 risk = 26,667 SHARES!!!!! 26,667 shares x $30 stock = $800,000! Haaa haaa haa!

So really, it's a silly method. Actually, for me, $0.15 is very wide; I normally want out at $0.08 - $0.12 a share risk. Do the math, and that means this silly method has you trading a $ amount into the millions. This screws up any diversification as well of course! No one really follows this day trading equities, right?!?

Is my method perfect? No way. I am bothered by it because it doesn't seem rigorous enough, but yet I can't use the %risk method, as it seems way too silly. I don't feel great about how I add-in, or peel-out of trades either, as I do it arbitrarily...kinda (see above). I don't impose targets on my trading either, as I think that is silliness too. Why self-impose a profit limit on yourself? Sure, if you have done extensive Max Favorable Excursion analysis on your trading, and found a certain $ value, use it. But I doubt most have done this. If you have a cure for the %risk silliness, post it please.

Regards,

John