Drawdown & Position Sizing Account Allocation - Psychology and Money Management | futures io social day trading
futures io futures trading


Drawdown & Position Sizing Account Allocation
Updated: Views / Replies:1,602 / 7
Created: by dgresens Attachments:0

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors Ė all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you donít need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 
Thread Tools Search this Thread
 

Drawdown & Position Sizing Account Allocation

  #1 (permalink)
Trading Apprentice
Atlanta GA
 
Futures Experience: Intermediate
Platform: TradeStation
Favorite Futures: ES, TF, EMD, CL, QM
 
dgresens's Avatar
 
Posts: 17 since Dec 2010
Thanks: 6 given, 3 received

Drawdown & Position Sizing Account Allocation

Hello -

What I am trying to understand is both drawdown and position sizing schools of thought. Let's say I have five systems that I am day trading (ES,TF) on a $25K account, keeping the math simple, allocating a hypothetical $5K/system.

For DD testing purposes, should I allocate $5K per system testing drawdown, or allocate the full $25K per system, although each system is not trading near the actual dollar amount due to intra-day margin requirements. If I define my risk of ruin at 35% based on the total AMDD of all systems combined, I should be trading with a $25K account. I'm not understanding what dollar amount or allocation I should use to calculate individual system drawdown.

Similar question to position sizing - if I used a Fixed Ratio method on 5 systems, would I start increasing position size based upon the growth of the hypothetically allocated $5k per system?

Thanks in advance for your thoughts...

Reply With Quote
The following 2 users say Thank You to dgresens for this post:
 
  #2 (permalink)
Quick Summary
Quick Summary Post

Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.

 
  #3 (permalink)
Site Administrator
Manta, Ecuador
 
Futures Experience: Advanced
Platform: My own custom solution
Favorite Futures: E-mini ES S&P 500
 
Big Mike's Avatar
 
Posts: 46,240 since Jun 2009
Thanks: 29,352 given, 83,233 received


Before you talk about drawdown, you need to first identify the risk per trade.

How much are you risking each trade in percentage terms of your total account size?

For example, if you are setting a stop loss at $500 and your account size is $50,000 that is 1%.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

Reply With Quote
 
  #4 (permalink)
Trading Apprentice
Atlanta GA
 
Futures Experience: Intermediate
Platform: TradeStation
Favorite Futures: ES, TF, EMD, CL, QM
 
dgresens's Avatar
 
Posts: 17 since Dec 2010
Thanks: 6 given, 3 received


Big Mike View Post
Before you talk about drawdown, you need to first identify the risk per trade.

How much are you risking each trade in percentage terms of your total account size?

For example, if you are setting a stop loss at $500 and your account size is $50,000 that is 1%.

Mike

The max risk on any trade is $625, in one system. All others are $500 or less.

Reply With Quote
 
  #5 (permalink)
Site Administrator
Manta, Ecuador
 
Futures Experience: Advanced
Platform: My own custom solution
Favorite Futures: E-mini ES S&P 500
 
Big Mike's Avatar
 
Posts: 46,240 since Jun 2009
Thanks: 29,352 given, 83,233 received

Answer
This post has been selected as an answer to the original posters question Answer


dgresens View Post
The max risk on any trade is $625, in one system. All others are $500 or less.

OK, so 2.5% of 25,000 account.

But if you put on multiple concurrent positions, you could easily be risking several times that. You'll need to identify any correlation between these trades, and if they are correlated then I would suggest trading fewer shares or micro size lot to reduce position size so the total risk across all positions is less than 5%. If they are not correlated then this isn't as important, but there will still be strings of volatility where you will see correlation and large drawdowns.

I am not aware of a formula to calculate drawdown. Instead, it is based on historical results which you would gather through extensive forward testing of live market, simulated trades. The larger the sample size the better. I would not pay much attention to a backtest, only to a forward test.

Whatever the analysis shows, I would still increase it because there are always unknown events, fat tails, black swans, etc.

If you are ultimately asking when to know if a system stops working, then again it would be a comparison of two groups of trades --- first group is your large sample size of forward tested trades before you went live, and second group is the actual cash trading results. Measure on things like MAE, MFE, average win, average loss, win percentage, trade expectancy, etc. If these columns start to strongly deviate from one group to another, then either one of the groups has inadequate sample size, or the markets have changed and your method is no longer working.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

Reply With Quote
The following 2 users say Thank You to Big Mike for this post:
 
  #6 (permalink)
Elite Member
Austin, TX
 
Futures Experience: Master
Platform: ninjatrader, r-trader
Favorite Futures: CL, NG, TF, NQ, YM, GC, ES
 
liquidcci's Avatar
 
Posts: 862 since Jun 2011
Thanks: 609 given, 1,051 received

Answer
This post has been selected as an answer to the original posters question Answer


dgresens View Post
Hello -

What I am trying to understand is both drawdown and position sizing schools of thought. Let's say I have five systems that I am day trading (ES,TF) on a $25K account, keeping the math simple, allocating a hypothetical $5K/system.

For DD testing purposes, should I allocate $5K per system testing drawdown, or allocate the full $25K per system, although each system is not trading near the actual dollar amount due to intra-day margin requirements. If I define my risk of ruin at 35% based on the total AMDD of all systems combined, I should be trading with a $25K account. I'm not understanding what dollar amount or allocation I should use to calculate individual system drawdown.

Similar question to position sizing - if I used a Fixed Ratio method on 5 systems, would I start increasing position size based upon the growth of the hypothetically allocated $5k per system?

Thanks in advance for your thoughts...

I would backtest each system integrating fixed ratio into the backtest. Starting with 5k may be enough to start with or it may not be. Also your delta under fixed ratio (when to increase or decrease) can only be accurately determined with extensive testing. It is really important to integrate your money management into backtesting and see how it effects things. Otherwise you could end up taking on to much risk or possibly leave to much profit on table by taking to little.

One way to approach would be to start with one system at 5k but keeping your 20k in reserve. Then when that system makes 5k instead of increasing contract size open new system with the 5 k you just made. Keep doing this until you have 5 systems running. Once have 5 running then apply fixed ratio to all systems and start to increase contract sizes based on delta your backtest etc produced. Of course 5k may not be the magic number. That would also need to be determined through testing.

This way you grow into your systems and keep a good reserve in place as you do it.

Just food for thought

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
Reply With Quote
The following 2 users say Thank You to liquidcci for this post:
 
  #7 (permalink)
Trading Apprentice
Atlanta GA
 
Futures Experience: Intermediate
Platform: TradeStation
Favorite Futures: ES, TF, EMD, CL, QM
 
dgresens's Avatar
 
Posts: 17 since Dec 2010
Thanks: 6 given, 3 received


liquidcci View Post
I would backtest each system integrating fixed ratio into the backtest. Starting with 5k may be enough to start with or it may not be. Also your delta under fixed ratio (when to increase or decrease) can only be accurately determined with extensive testing. It is really important to integrate your money management into backtesting and see how it effects things. Otherwise you could end up taking on to much risk or possibly leave to much profit on table by taking to little.

One way to approach would be to start with one system at 5k but keeping your 20k in reserve. Then when that system makes 5k instead of increasing contract size open new system with the 5 k you just made. Keep doing this until you have 5 systems running. Once have 5 running then apply fixed ratio to all systems and start to increase contract sizes based on delta your backtest etc produced. of course 5k may not be the magic number that would also need to be determined through testing.

This way you grow into your systems and keep a good reserve in place as you do it.

Just food for thought

That's excellent advice and I appreciate it liquidcci - Thank You.

Reply With Quote
 
  #8 (permalink)
Elite Member
Austin, TX
 
Futures Experience: Master
Platform: ninjatrader, r-trader
Favorite Futures: CL, NG, TF, NQ, YM, GC, ES
 
liquidcci's Avatar
 
Posts: 862 since Jun 2011
Thanks: 609 given, 1,051 received


dgresens View Post
That's excellent advice and I appreciate it liquidcci - Thank You.

Sure thing. Also I would expect each system may have different capital requirements and fixed ratio deltas. I like to treat each signal I have as a different system because each one has it's own characteristics.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
Reply With Quote

Reply



futures io > > > Drawdown & Position Sizing Account Allocation

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)

Jigsaw Trading: TBA

Elite only

FuturesTrader71: TBA

Elite only

NinjaTrader: TBA

Jan 18

RandBots: TBA

Jan 23

GFF Brokers & CME Group: Futures & Bitcoin

Elite only

Adam Grimes: TBA

Elite only

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
I would like a Fixed Ratio position sizing spreadsheet PandaWarrior Psychology and Money Management 7 December 25th, 2014 01:25 PM
Brownian Motion & Max Drawdown from Wolfram DummyWill Platforms and Indicators 2 March 27th, 2012 05:06 PM
Position Sizing by Van Tharp Laserdan Psychology and Money Management 21 July 8th, 2011 11:37 AM
Account position: How to differentiate positions arjfca The Elite Circle 5 February 5th, 2011 03:27 PM
Position sizing codes ptcm EasyLanguage Programming 2 January 2nd, 2011 04:24 PM


All times are GMT -4. The time now is 08:58 PM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2017-12-14 in 0.15 seconds with 33 queries on phoenix via your IP 54.221.73.186