Monte Carlo and Position sizing | Psychology and Money Management


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Monte Carlo and Position sizing

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Golden Bay, New Zealand
 
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Position size is a function of volatility, and account size = $risk per trade. If you are use Excel to create a monte carlo use the raw input of stop loss and target, and then formulate it so position size is based on the current simulated account size for that trial.

So that last trade of 100 contracts may end up as the first in one of the simulations with a position size of 1, and a loss of $10. It may have had a SL of 5 points in the backtest, and so continues to have a SL of 5 points, but will have all sorts of position size associated with it, based on the sequence it's selected. If you don't have the SL associated with each trade, then you should have a risk per trade, so you'll have to go through and figure out how many points that equated to in the back test results.

Once you have the points risk for each trade you can size up each sequential trade in the simulation based on the current account size.

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