A Study in Risk Management and Position Sizing

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Purpose:

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

Methodology:

* 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

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20121009 FESX 12-12 7:48 S 5 390 2600
20121009 6B 12-12 9:12 L 6 375 -375
20121009 6C 12-12 9:30 L 6 360 -370
20121009 TF 12-12 11:18 S 3 330 630
20121009 NQ 12-12 12:27 S 5 375 -350
20121009 ES 12-12 12:55 S 4 400 -400
20121009 NQ 12-12 12:55 S 4 340 -360
20121009 6C 12-12 14:00 S 4 320 160
20121009 6B 12-12 14:00 S 7 394 219
20121009 ES 12-12 14:06 S 2 275 350

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20121010 FDAX 12-12 7:08 S 1 293 358
20121010 6B 12-12 8:45 L 12 375 1200
20121010 FDAX 12-12 8:42 L 1 293 -325
20121010 FDAX 12-12 9:00 L 1 358 -358
20121010 6B 12-12 9:35 S 8 400 450
20121010 YM 12-12 10:54 L 4 340 -340
20121010 ES 12-12 10:55 L 2 275 -275

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20121011 6B 12-12 9:18 L 12 375 -425
20121011 YM 12-12 9:55 S 6 390 690
20121011 6B 12-12 10:20 L 9 394 488
20121011 6C 12-12 10:55 L 5 400 -400
20121011 6E 12-12 11:57 S 6 375 350
20121011 ES 12-12 12:06 S 5 375 563
20121011 YM 12-12 12:55 L 6 390 -390
20121011 YM 12-12 13:50 L 5 375 -375
20121011 6B 12-12 10:20 L 7 350 -350
20121011 6E 12-12 14:28 L 6 375 -75
20121011 NQ 12-12 14:33 S 5 375 725
20121011 TF 12-12 14:33 S 3 300 330

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20121012 FDAX 12-12 7:03 S 1 374 520
20121012 FESX 12-12 7:03 S 6 390 312
20121012 6B 12-12 9:36 L 10 375 500
20121012 FDAX 12-12 10:20 L 1 325 -325
20121012 NQ 12-12 13:42 S 7 385 -385
20121012 FDAX 12-12 13:40 S 3 342 -390
20121012 NQ 12-12 13:55 S 5 350 645
20121012 6C 12-12 14:20 S 8 400 -400

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20121015 FDAX 12-12 8:04 L 1 310 -341
20121015 TF 12-12 9:34 L 1 250 550
20121015 TF 12-12 12:15 S 3 330 120
20121015 YM 12-12 12:39 L 11 385 55
20121015 6B 12-12 12:42 L 16 400 0
20121015 NQ 12-12 13:45 L 6 360 1440
20121015 FDAX 12-12 13:45 L 2 390 975
20121015 FESX 12-12 13:45 L 7 364 637

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20121016 FDAX 12-12 11:12 TS4 S 2 325 -325
20121016 6E 12-12 11:45 TS3 S 6 375 -375
20121016 TF 12-12 12:00 TS4 L 5 350 700
20121016 6B 12-12 13:27 TS3 L 21 394 -425
20121016 6C 12-12 13:40 TS3 L 6 360 -360
20121016 6C 12-12 14:20 TS3 L 5 400 50
20121016 YM 12-12 14:10 TS4 L 7 385 595

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20121017 6B 12-12 9:42 S 10 375 625

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20121018 6E 12-12 6:24 L 3 375 188
20121018 6E 12-12 8:20 L 2 325 -325
20121018 NQ 12-12 8:45 L 2 290 -295
20121018 ES 12-12 9:21 L 5 375 1375
20121018 6B 12-12 9:27 L 10 375 813
20121018 YM 12-12 10:18 S 7 385 -385
20121018 6C 12-12 12:20 L 5 350 -350
20121018 TF 12-12 12:14 L 2 400 -380
20121018 6C 12-12 12:57 L 10 400 -400

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20121019 6C 12-12 10:35 L 5 350 -400
20121019 6C 12-12 11:21 L 4 360 60
20121019 TF 12-12 12:18 S 4 360 1200
20121019 6C 12-12 12:21 S 6 360 180
20121019 6B 12-12 12:36 S 12 375 375
20121019 TF 12-12 13:00 L 3 390 -390
20121019 FDAX 12-12 13:00 L 2 358 -358

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could you break down the columns to me ? I get most of them but just want to make sure

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20121022 YM 12-12 8:50 L 5 375 -400
20121022 TF 12-12 9:09 S 3 390 330
20121022 6E 12-12 9:24 S 3 337 638
20121022 6E 12-12 10:24 L 6 375 0
20121022 ES 12-12 10:30 L 2 275 -275
20121022 6E 12-12 11:36 L 5 375 -375
20121022 NQ 12-12 12:54 L 2 330 220
20121022 FDAX 12-12 14:18 S 1 212 -212
20121022 ES 12-12 14:30 S 4 400 -400
20121022 NQ 12-12 14:30 S 6 390 -390

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20121023 6B 12-12 8:24 S 5 344 375
20121023 6E 12-12 9:06 S 4 350 300
20121023 NQ 12-12 11:03 S 5 400 -400
20121023 ES 12-12 11:21 S 5 375 -375
20121023 ES 12-12 11:39 S 4 350 -350
20121023 YM 12-12 12:48 L 6 360 -360
20121023 TF 12-12 12:51 L 5 400 -400
20121023 TF 12-12 12:57 L 3 330 440
20121023 YM 12-12 14:05 S 4 360 760
20121023 6C 12-12 14:03 S 6 360 -360
20121023 TF 12-12 14:05 S 2 360 -40
20121023 6C 12-12 14:21 S 8 400 240

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1st column - Trade date
2nd column - Futures contract (XX MM-YY)
3rd column - Time of trade setup (US CST)
4th column - Direction of trade (Long or Short)
5th column - Number of contracts
6th column - Initial $ Risk on trade (should always be less than $400)
7th column - Profit or Loss on trade

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20121024 6E 12-12 7:21 S 4 350 -350
20121024 6E 12-12 9:21 L 4 350 -350
20121024 YM 12-12 9:45 S 8 360 -360
20121024 6B 12-12 10:12 L 9 394 -394
20121024 TF 12-12 10:24 L 4 360 -360
20121024 NQ 12-12 10:22 L 4 360 -360
20121024 ES 12-12 11:03 L 5 375 375
20121024 6E 12-12 11:05 L 4 350 200
20121024 6C 12-12 13:06 S 8 400 1760
20121024 NQ 12-12 13:35 S 3 345 315

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20121025 6E 12-12 9:00 L 3 338 -338
20121025 NQ 12-12 9:54 L 5 400 -400
20121025 TF 12-12 9:54 L 2 280 -280
20121025 ES 12-12 9:55 L 5 400 -400
20121025 NQ 12-12 13:42 S 6 390 1350
20121025 YM 12-12 13:50 S 5 375 -375
20121025 6B 12-12 13:51 S 12 375 -375

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Metric Value
1 Start Date 20121009
2 End Date 20121026
3 Starting Equity 40000
4 Equity High 46651
5 Equity Low 38775
6 Net Profit 5384
7 Final Equity 45384
8 Return on Starting 13.46
9 Number of Trades 96
10 Percent Profitable 46.88
11 Max Position Size 21
12 Avg Win 522.13
13 Max Consec Wins 5
14 Largest Win 1760
15 Avg Loss -355.14
16 Max Consec Losses 5
17 Largest Loss -425
18 Profit Factor 1.30
19 Win-Loss Ratio 0.88

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20121031 TF 12-12 10:10 L 3 390 -360
20121031 ES 12-12 11:39 L 4 350 550
20121031 YM 12-12 11:39 L 7 385 665
20121031 6E 12-12 11:39 L 6 375 450
20121031 6C 12-12 12:05 S 6 360 -420
20121031 ES 12-12 14:20 S 4 350 -350

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20121101 NQ 12-12 10:55 S 5 400 100
20121101 YM 12-12 11:12 L 13 390 -330
20121101 YM 12-12 11:21 L 8 360 -320
20121101 6E 12-12 13:15 L 8 400 200

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20121102 6B 12-12 9:20 S 7 394 306
20121102 6B 12-12 12:20 S 12 375 750

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20111105 YM 12-12 11:45 L 11 385 -420
20121105 TF 12-12 11:57 L 3 390 660
20121105 6B 12-12 11:57 L 10 375 800
20121105 ES 12-12 12:00 L 5 375 1063
20121105 YM 12-12 12:09 L 8 400 400
20121105 NQ 12-12 13:09 S 8 400 -400
20121105 ES 12-12 13:58 S 4 350 -350
20121105 YM 12-12 14:10 S 8 400 -400

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20121106 6E 12-12 8:20 DP S 3 337 0
20121106 6E 12-12 10:52 DP S 4 400 -400
20121106 6E 12-12 12:52 DP S 4 375 375
20121106 NQ 12-12 13:12 TS3 L 6 390 240

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20121107 6E 12-12 8:24 S 3 337 -337
20121107 6C 12-12 9:10 L 5 400 -350
20121107 6E 12-12 9:45 S 3 338 -375
20121107 6B 12-12 10:10 S 5 375 250
20121107 6C 12-12 11:30 S 5 400 -400
20121107 6B 12-12 12:15 S 9 394 -394
20121107 6B 12-12 13:30 S 16 400 -400

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20121108 ES 12-12 9:30 L 3 338 -338
20121108 ES 12-12 9:45 L 2 325 -325
20121108 YM 12-12 9:45 L 3 330 -330
20121108 6E 12-12 9:45 L 3 375 225
20121108 6B 12-12 10:10 L 7 394 306
20121108 ES 12-12 10:24 L 4 400 -400
20121108 YM 12-12 10:24 L 6 390 -390
20121108 TF 12-12 10:24 L 4 360 -360
20121108 YM 12-12 10:39 L 3 360 -360
20121108 ES 12-12 10:39 L 2 325 -325
20121108 NQ 12-12 13:42 L 4 380 -380

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20121109 6E 12-12 8:39 S 5 375 -375
20121109 6B 12-12 9:12 S 6 375 563
20121109 YM 12-12 10:09 S 4 380 -380
20121109 6B 12-12 11:21 S 9 394 1013
20121109 6C 12-12 11:35 S 8 400 80
20121109 6E 12-12 11:48 S 3 375 263
20121109 NQ 12-12 13:39 S 4 360 420
20121109 6C 12-12 13:36 S 8 400 1360

(1) If you don't bet, you can't win.
(2) If you lose all your chips, you can't bet.

Larry Hite

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For a system where the probability of failure for a trade is 55%, the probability of facing a minimum of K consecutive losing trades in 100 total trades is

K probability
-------------------
5 92.05%
6 72.9%
7 49.71%
8 30.68%
9 17.87%
10 10.09%
11 5.6%
12 3.08%
13 1.68%
14 0.92%
15 0.5%

Allowing profits to run + correct position sizing for the given trade risk = long-term success in the face of expected drawdowns.

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20121112 ES 12-12 10:22 DP L 4 400 500
20121112 TF 12-12 13:06 TS2 L 5 350 -350
20121112 YM 12-12 13:06 TS2 L 8 400 -400
20121112 NQ 12-12 13:42 TS3 L 6 390 -390
20121112 ES 12-12 13:48 TS3 L 6 375 -375
20121112 YM 12-12 13:38 TD3 L 7 385 -385
20121112 NQ 12-12 14:21 DP L 7 385 420
20121112 YM 12-12 14:24 DP L 8 360 520

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20121113 NQ 12-12 10:09 S 4 400 260
20121113 6B 12-12 10:15 S 7 394 525
20121113 6C 12-12 10:42 L 8 400 -400
20121113 6E 12-12 12:15 L 5 375 -375
20121113 6B 12-12 12:12 L 10 375 -375
20121113 6C 12-12 13:03 S 13 390 390
20121113 YM 12-12 13:50 L 4 360 -360
20121113 6B 12-12 14:15 L 16 400 -400
20121113 TF 12-12 14:30 L 2 280 -280

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20121114 TF 12-12 9:03 DP L 2 400 -400
20121114 6E 12-12 9:45 TS3 L 4 350 1800
20121114 ES 12-12 11:03 TS3 S 4 300 150
20121114 YM 12-12 11:00 TS3 S 5 375 275
20121114 TF 12-12 11:42 TS3 L 3 360 -360
20121114 TF 12-12 12:15 DP L 4 400 -400
20121114 ES 12-12 13:25 DP L 3 375 -375

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kuratti

Purpose:

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

Methodology:

* 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

@kuratti

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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@djkiwi

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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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

A Study in Risk Management and Position Sizing

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