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A Study in Risk Management and Position Sizing

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A Study in Risk Management and Position Sizing

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  #31 (permalink)
Mercer Island WA
Experience: Advanced
Platform: Ninjatrader/Strategy Desk
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Trading: TF/NQ/ES/Stocks
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kuratti View Post


* Keep a journal of trades using simple trend-following mechanical day trading system
* Determine if such a simple system has a positive expectancy


* When trend is well-defined on 2 timeframes and in the same direction, enter market using trade setup on lower timeframe.
* R:R ratio for trade on lower timeframe must be 2:1 or higher
* Entry price and stop price are determined by market structure and EW methodology.
* When ATR trailing stop reaches entry point, trail using ATR stop.
* Follow US E-minis, FDAX, FESX, 6B, 6C, 6E during US market hours.

Risk/Position sizing:

* Maximum risk per trade = 1% of $40,000 account = $400
* # contracts = FLOOR(400 / [ABS(entry price - stop price) * pointvalue])

Trade Record Format:

* Date Contract CST_Entry_Time Direction #_Contracts $_Risk P/L


This looks like a simple but effective approach to multi-instrument trading. The number of contracts traded suggests you are scalping. What are the typical stop and target sizes with your approach?

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  #32 (permalink)
Posts: 34 since Sep 2011
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Thanks for your observations.

As far as the number of contracts, I'm position sizing based on 1% of a $40000 account and entering trades where the projected R:R is > 2:1.

I'm using 3 and 5 min charts for entry, so the entry price to stop price will be smaller than on larger time frames. Smaller bars mean larger numbers of contracts to scale up to the 1% $ risk.

For markets with smaller point values like the 6E, 6B, and 6C, I'm definitely trading more contracts per trade than say the TF or ES.

I'm also using an ATR trailing stop to capture those trade that move past the projected targets. So, P/L would differ from the projected R:R.

After a large run-up, the system had a drawdown and is chopping around a bit.

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  #33 (permalink)
Posts: 34 since Sep 2011
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20121115 YM 12-12 10:25 L 3 315 -300
20121115 TF 12-12 10:33 L 3 390 -390
20121115 ES 12-12 11:30 L 4 350 350
20121115 ES 12-12 12:15 S 4 350 -350
20121115 6E 12-12 12:10 L 5 375 -375
20121115 6B 12-12 12:10 L 10 375 62.5
20121115 TF 12-12 14:12 L 2 280 -280
20121115 ES 12-12 14:12 L 2 275 -275

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