Position Sizing as an Approach to Risk Management

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Old Sep 30, 2009, 1:00pm   #1
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Position Sizing as an Approach to Risk Management

We've just published a new T2W article called "Position Sizing as an Approach to Risk Management" by Trader333.

Quick Summary: This article discusses how position sizing can be used to optimize risk when trading. It includes a downloadable Excel spreadsheet as well as practical examples of how this can be used for different trading styles.

PS. Don't forget to rate the article after you've read it and share your comments on this thread.
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Old Sep 30, 2009, 7:29pm   #2
 
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Lets look at trader X

He has a maximum risk tollerance per trade of lets say $100 of capital and a fixed position size.
The fixed position size is based on the maximum risk tollerance.
If the maximum tollerance for 100 shares is $10, trader X will always trade 1000 shares.

One boundary condition to enter a trade is that the stop can vary in distance from the entry, based on “Technical” reasons as to why the trade is no longer valid, but this desired stop is always less or equal to the defined maximum tollerance for risk.

Trader X knows his:
-maximal risk = $100 (excl. slippage and transaction costs);
-size = 1000 shares;

And he enables himself to outperforme his maximum risk by also selecting technical valid trades that have less risk than the $100.

Last edited by superfly; Oct 1, 2009 at 5:25pm.
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Old Oct 2, 2009, 10:36pm   #3
 
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Excellent article, pitched at the right segment and expressed clearly and concisely.
A good example of the standard that should be on Knowledge Lab., or whatever it's called these days.
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Old Oct 3, 2009, 12:55am   #4
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I thought it was an interesting article.

Very much what I do when I position size. Newbs should take note.

I'd like to see more on risk management though.

Last edited by pedro01; Oct 3, 2009 at 3:35am.
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Old Oct 3, 2009, 10:38am   #5
 
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Good article which goes into more depth than most of the articles normally delve in the Knowledge Lab. I think it will help newbies start to consider different approaches to both stops and, perhaps, to really consider position sizing for the first time
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Old Oct 9, 2009, 3:19am   #6
 
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Great article, that's is one of the better explinations of the use of ATR that I have seen. Kind of finny that two of the trades I placed today were examples of Trader A and Trader B. One was stopped out to early and the other made money and is still going.
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Old Aug 13, 2017, 7:29am   #7
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What if extreme volatility breaks out , comes to your stops ,takes it out and goes in your intended direction without the trader?It happens quite often!

What if the market makes a monkey out of tight stop scared money traders?
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