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How Many Contracts on ES?
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How Many Contracts on ES?

  #11 (permalink)
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Thanks for the posts.
I'll get my stats from my backtesting and calculate from there.

Many Thanks

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  #12 (permalink)
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NW27 View Post
Get a book by Brent Penfold called something like Trading the SPI. The SPI in the book is actually the Australian futures and he does a very good section on explaining how to calculate the number of contracts to trade and potential gotchas.
Neil.

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Hi NW, I could find this book. I have a feeling that it's out of print. But I found this one "The Universal Principles of Successful Trading".
Thanks for the recommendation.

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  #13 (permalink)
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The better question is - why is your stop loss 6 ticks? Is this just a predefined number you set in your head since it's 1.5%?

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  #14 (permalink)
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Itchymoku View Post
The better question is - why is your stop loss 6 ticks? Is this just a predefined number you set in your head since it's 1.5%?

No, the stop loss amount is about right based on the method and a lot of backtesting.
I would prefer it to be 1% !!

Unfortunately due to my fund size, another method that gives good results requires a larger stop loss and I won't be able to trade it live for a while. But I will continue to trade it in SIM mode.

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  #15 (permalink)
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Hood View Post
Guys, all this % risk is a bit confusing for me. I want to trade ES and basically is there an easy way to calculate how many contracts to trade?
My broker has a margin requirement of $400 per contract. My Stop Loss will be 6 ticks.
My fund will be $5000 for live trading.

So 6 ticks will be $75 risk per contract?
That is 1.5% based on my starting fund.
Is this too high/low?

What I want to understand is how many thousands in my account will equate to hwo many contracts to trade.
i.e. $5000= 1 contract
$10,0000= 2 contracts etc.

I vary the number of ES contracts I trade based on the time of day - the first hour and a half is what I consider the sweet spot and risk the largest number of contracts per trade during this time. The last hour and a half (or so) I risk a smaller number of contracts per trade than I would during the sweet spot. In between those times I cut the number of lots traded either to zero or a very small amount. My reasoning for this is because of institutions like Goldman Sachs, etc. trading huge volume make their big moves at the open. At the end of normal market hours they may make adjustments to their holdings but likely those are in smaller amounts than their moves at the open. This is why I trade less lots at the end of normal market hours than at the open. The big institutions don't do so much in between those times so neither do I. I don't trade outside of those hours at all. That said, I will lower trade size regardless of time of day if the market is trading a significantly smaller range than normal or if the market is choppy. I also factor in risk / reward - if I were risking 6 ticks like you are (which seems reasonable to me if you are entering prudently) I like to have a target at a minimum of 2:1 risk / reward, though that is usually not a good enough ratio in my mind. So if going for lower risk / reward trade I would risk less contracts in that scenario as well. You are correct about 6 ticks as risking $75 per contract (assuming no slippage), and though it is a personal decision, you can do quite well with the size account you have in ES. You may want to start at a single contract until you are green every day for a couple of weeks and then slowly build up from there. Maybe 3 contracts green for a month before adding more size, etc. No rush since you can do quite well even at that level. I hope this helps!

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  #16 (permalink)
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Hood View Post
No, the stop loss amount is about right based on the method and a lot of backtesting.
I would prefer it to be 1% !!

Unfortunately due to my fund size, another method that gives good results requires a larger stop loss and I won't be able to trade it live for a while. But I will continue to trade it in SIM mode.

Hood,
I responded to your initial post before reading this part, so I apologize for not including this view of stops. While I consider 6 ticks an acceptable risk on a prudently entered trade, I tend to set my stops further out to protect against a catastrophic loss due to unexpected news / world events. I dislike tight stops because I want to control my exits. I personally never would consider trailing stops. My preference is for me to take me out of a trade that is not working - I don't want a stop to do that for me. Many, if not most traders likely have a different view. Of course this is predicated on knowing you have prudently entered a trade, but that is a different topic. I wish you the best!

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  #17 (permalink)
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Hood....


I think the answer to the question won't help because you're asking the wrong question. Maybe you're a good trader or maybe you're just starting out....but if you're good...then you should know your avg drawdowns $ and psychologically and can test where you can go....

....if you're new, then assume you're prob gonna lose most of your 5k so it doesn't matter what you risk cause you'll break your rules, revenge trade or overleverage and overtrade anyway....most likely.....maybe you're quite smart and have great self control, but most likely you'll lose it.

There's way too many things that will deter you from correctly focusing on your skill and if you don't manage yourself you have no chance at managing your trades.

the question is....what is your avg draw down and how long does it usually last for with real money? if you don't have an answer to that then you're a skip and a hop ahead.

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  #18 (permalink)
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Hi Hood,

I think there were some very good replies in the thread.

It might help others to see what you calculated and based on what stats and strategy.

Just a thought

Keep your mind in the future, in the now.
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  #19 (permalink)
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Guys, thanks for all of the good advice.
In summary I am under capitalised...
With my 6 tick stop loss method I think I am ok but with my other method which requires a larger stop loss my risk is too large.
But to be honest I am having other problems at the moment with the transition to live trading.
Also the market conditions seemed to have changed since my back testing.

I'll start a separate thread on these issues though.

Again, thanks for the good advice.

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  #20 (permalink)
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Hood View Post
Guys, thanks for all of the good advice.
In summary I am under capitalised...
With my 6 tick stop loss method I think I am ok but with my other method which requires a larger stop loss my risk is too large.
But to be honest I am having other problems at the moment with the transition to live trading.
Also the market conditions seemed to have changed since my back testing.

I'll start a separate thread on these issues though.

Again, thanks for the good advice.

If you are under capitalized for the ES, you should find another instrument that is suitable to your account, like micro contracts, or forex, etc...

Successful people will do what unsuccessful people won't or can't do!
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