All this sizing variation is something I never do in real life. Then again, I never have an initial drawdown requirement like there is in the Combine. In real life, I usually size to maximize rate of return, given a maximum allowable drawdown (which is from the equity peak, not from starting capital like TST Combine).

Maybe I will attempt some different position sizing techniques in my simulator, and see what turns out to be best. If I do that, I will share my study with everyone.

As of right now, though, I intend to stick to the original plan, which will be to trade as big of a size as possible (once I get to or above breakeven), while still respecting the Daily Loss Limit requirement. That means a max of 6-10 contracts, usually 6.

If I go back under breakeven, I will cut size so as to not fail the max drawdown rule.

I'm not positive this is the "optimum" way to trade this Combine - i.e., maximize chance of passing the Combine while minimizing the chance of failing. I don't think I am far from optimum though, since I know trading 3-4 contracts for the whole Combine would probably never get me to a pass situation.

The following 3 users say Thank You to kevinkdog for this post:

So your risk as a percentage of your account is 0.28% per contract and if you trade 4 contracts it is just over 1%?

Your max drawdown is 3%. So 3 losers in a row with 4 contracts and you're out of the game?

You haven't mentioned strategy, but is there a reason why $425 per contract is your risk?

I ask this because I don't have a defined dollar risk when I trade. (Stocks not futures) I use a percentage of my account, determine the risk per share depending on where I enter and place my stop and calculate the position size based on the percentage of my account.

The following user says Thank You to deaddog for this post:

For the Combine, I did not look at it this way, since the $150K starting equity is really just a number, devoid of any meaning, since the metrics you have to hit are all dollar based, not percentage of equity based. The starting equity could be $1.5 million, and I'd still trade the same, since profit, drawdown and daily loss limit are dollar limits.

Sort of. First the max drawdown is calculated based on starting equity, not peak equity. So the requirement is really never to have closed equity drop below $145,500. I could theoretically run equity up to $300K, and then have a drawdown of $100K, and not violate the rule.

So, the 3 losers in a row would just be at the start, or any time I had $150K or less equity.

BUT, I'd never trade 4 contracts all the way down. I'd reduce to 1 contract to maximize my chances of staying in the game.

When I developed the strategies I use, I allowed up to $425 per trade per contract loss (leaving room for slippage and commissions, for a total per trade per contract loss less than $500). It turns out that $425 had the best performance.

Nothing wrong with that - it is a pretty standard method. I just had to do things a bit differently because of Combine constraints.

The following user says Thank You to kevinkdog for this post:

OK, based on comments I have received, and questions that I have received during my weekly Squawk Radio interviews on TopStepTrader, it is clear that many people think I used a poor position sizing approach for my current Combine. Before the Combine, I picked a certain approach that I thought was best, but I did not analyze it. Now I will analyze it, along with some others...

NOTE: This analysis is specifically for the system I am trading for the Combine. It might turn out that different systems will yield a different best result. So, don't take the conclusion of this analysis for your trading, unless you test it first.

PROBLEM:

Maximize the chances of passing the $150K Combine (need to hit $166K profit after 20 trading days)

SUBJECT TO:

1. Never let closed equity level drop below $145500 (the max drawdown rule)

2. Never lose more than $3000 in one day (Daily Loss Limit rule)

SOLUTION METHOD:

Try various position sizing techniques using Monte Carlo simulation (you can find this Excel tool earlier in the thread. I have modified it to give the various position sizing methods.) I input my daily trading results into the simulator, based on walkforward backtests. Results should generally be accurate, except it will not model days when there are multiple trades (and when I might use different sizing on each trade). This should not happen too often.

I will use 3 Position Sizing techniques:

1. Constant contract size, 1 to 10 contracts each trade throughout Combine

2. "Cut Size" model, where Combine starts with large size, and cuts down as equity gets close to max drawdown level (this is what I am using)

3. "Add Size" model, where Combine start small (1 or 3 contracts), then adds size as equity grows

Note: I am using my current position as the starting point for analysis. $148,900 equity, profit target $17,100, max drawdown $145,500 and 26 trading days left in Combine.

RESULTS:

Constant Contract Size Model

The table below shows the probability of certain events occurring. For example, If I trade 1 contract continuously, I have 0% chance of reaching profit target, 100% chances of staying above the max drawdown equity, and 100% chance of staying above the Daily loss limit. So, I'd never pass the Combine with 1 contract.

If you look at the results, I improve my chances of reaching profit target by increasing size, but only up to 6 contracts. After 6 contracts, I run the almost certain risk of violating the Daily Loss limit.

So, this says my best bet is to trade 6 constantly, but not more than that. I recommend you make sure you can see that before reading on. Ask questions if you don't.

Cut Size Model

Since in the Constant Contract Size model 6 contracts is best, that is where I will start. I will cut size, though, as equity dips below the starting equity. The idea will be to trade smaller as equity falls, so that I do not violate the max drawdown rule.

Here is the size schedule I used:
If equity > 150000 Then lotsize = 6
If equity < 150000 Then lotsize = 5
If equity < 149000 Then lotsize = 4
If equity < 147500 Then lotsize = 3
If equity < 146500 Then lotsize = 2
If equity < 146000 Then lotsize = 6 'last trade before failure, go for broke - if trade loses, size does not matter

Using this model, I can improve the odds of staying above the max drawdown, without too much of a drop in the odds of meeting the profit target.

Add Size Model

Since in the Constant Contract Size model 6 contracts is best, that is where I will end. I will add size as equity grows above the starting equity:

Add Size - 1 to 6 Model

If equity <= 150000 Then lotsize = 1

If equity > 150000 Then lotsize = 2
If equity > 152000 Then lotsize = 3
If equity > 154000 Then lotsize = 4
If equity > 156000 Then lotsize = 5
If equity > 158000 Then lotsize = 6

Add Size - 3 to 6 model

If equity <= 150000 Then lotsize = 3

If equity > 152000 Then lotsize = 4
If equity > 154000 Then lotsize = 5
If equity > 156000 Then lotsize = 6

Here are the results:

CONCLUSION

OK, so what is "optimum?" There is no clear cut answer, since it depends on what you feel is more important: A) passing the Combine profit target or B) staying above the Max Drawdown.

If you wanted to maximize your chances of staying above the max drawdown, you'd probably pick "Add Size- 1 to 6" Model, or maybe the "Add Size - 3 to 6 Model." But with those models, you have little chance of meeting the profit target.

If, like me, you wanted to maximize your chances of meeting the profit target, you'd probably pick the "Cut Size - 6 to 1" model or the "Constant Contract 6" model.

I had originally started the Combine with the "Cut Size - 6 to 1" model. Based on this analysis and my personal preferences, I still feel that is the best model to meet my goals.

EPILOUGE

Unfortunately, this analysis tells me that at this point I don't have good odds of passing the Combine. It also says that my choice of trading system is not the best for this size Combine (if you will recall, I designed this trading system for the $30K combine, where the performance goals are quite different). So, I tried to fit a square peg (my trading system) into a round hole (the Combine requirements) by using a hammer (my position sizing). It probably won't work.

So, what would I do, if I could start over? I'd modify the system to be able to increase size within a trade, or a trading day, to increase size after wins, without increasing initial risk. Basically, an "add to winners" approach. Having a smaller stop size (less than $425 per contract) would also be a big help, too.

Comments and questions are welcome, especially since I wrote this quickly and I may have missed some key points. If you disagree with my conclusion to use the "Cut Size 6 to 1" model, please speak up. Maybe I am looking at this the wrong way.

If you think you have a better sizing model, please present it in detail, and I will test it with my trading system. Keep in mind though that results will ONLY apply to my specific trading model. But maybe you can do better than me!

The following 7 users say Thank You to kevinkdog for this post:

Enjoyed your interview on TST, Kevin. Have you considered the issue that once you pass combine with your overnight systems you won't be able to trade them in LTP and Junior trader phases? They only allow to trade from 7 AM to 3:10 PM CST.

Actually, before I started Combine #2, I had a 30 minute conversation with John Hoagland at TST specifically about what, if anything, I'd have to change in my system from Combine to LTP to JT. His conclusion was that I could trade the same way. BUT, we did not talk specifically about overnight trades.

Given my performance so far in Combine #2 (and probabilities for passing given in my post earlier today), it is probably not something I have to worry about, anyhow.

For me, it looks like trading strategies 1-3 with my own money (I already trade strat #4 with my own money) will be the way to go...

The following 2 users say Thank You to kevinkdog for this post: