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Position sizing and successful trading.
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Position sizing and successful trading.

  #1 (permalink)
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Position sizing and successful trading.

Good money/risk management is of paramount importance to a successful trading career and Van K.Tharp's "Definitive Guide to Position Sizing" is a great resource.

It is a fairly expensive book, but the information is well worth the price in my humble opinion.

I searched the forum for any threads on this book but found none so I hope this is not redundant.

Now that we have the stage set lets see where we can go with the concept and practice of good money management.

Happy trading....

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An excerpt from Van Tharp's book


This is from Van Tharp's book Definitive Guide to Position sizing. I thought this would be a good place to start.


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Last edited by johnedoe; September 19th, 2014 at 09:09 PM.
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Position sizing is just one part of the equation. You also have to factor in Risk / Reward and your Edge.

Without a definable Edge, position sizing isn’t much of a factor.

Using the “% risk model” shown above at least you will never lose all your capital if you have the discipline to follow your plan. (It would take 70 losing trades in a row to loses ˝ your capital and then you might want to re-evaluate your methodology)

It is hard to find the Truth when you start your search with a preconceived notion of what the Truth will be.
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deaddog View Post
Position sizing is just one part of the equation. You also have to factor in Risk / Reward and your Edge.

Without a definable Edge, position sizing isn’t much of a factor.

Using the “% risk model” shown above at least you will never lose all your capital if you have the discipline to follow your plan. (It would take 70 losing trades in a row to loses ˝ your capital and then you might want to re-evaluate your methodology)

Generally speaking the the most profitable systems are of a trend following nature so obviously we are not using a scalping or other short TF day trading method to discuss this.

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johnedoe View Post
Generally speaking the the most profitable systems are of a trend following nature so obviously we are not using a scalping or other short TF day trading method to discuss this.

Does the type of trading system have an effect on the method of position sizing?

It is hard to find the Truth when you start your search with a preconceived notion of what the Truth will be.
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deaddog View Post
Does the type of trading system have an effect on the method of position sizing?


I use a compounding fractional method trading the FX since the broker I use has entries in units instead of lots, or fractions of lots, so in that respect the compounding is very precise.

Trading futures would require a less precise position sizing method.

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johnedoe View Post
I use a compounding fractional method trading the FX since the broker I use has entries in units instead of lots, or fractions of lots, so in that respect the compounding is very precise.

Trading futures would require a less precise position sizing method.

If one tick makes a significant difference you are probably under capitalized for the market you are trading.

It is hard to find the Truth when you start your search with a preconceived notion of what the Truth will be.
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deaddog View Post
If one tick makes a significant difference you are probably under capitalized for the market you are trading.


It is not always the case. Try to manage confidently 50 lots position for some slight drawdown and you will see how every pip fluctuate your mental state..

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kernel View Post
It is not always the case. Try to manage confidently 50 lots position for some slight drawdown and you will see how every pip fluctuate your mental state..

I believe the point is if one pip causes mental distress, you are way, way, WAY over leveraged.

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