For those interested in position sizing quickly on the fly the following product for ninja looks interesting. Allows you to calculate the number of contracts to enter based on fixed fractional position sizing and then enter the position all with a couple of clicks on the chart.
I have not bought it yet ($695!) but probably will.
I have no affiliation with them.
Would be interested in hearing from anyone who might have used it
Personally I don't think it's worth the money - 2- 300 would be a better price. However the programmer is excellent so any bugs would always be quickly ironed out.
I am working on my own version - but it is a way off yet and currently is broken with NT7 ( lots of internal changes which can really screw up code if you use mouse clicks).
I want to be able to set the risk per trade as a % of available cash.
Also to set the pip stop loss and target as a % of the ATR, this would also calculate my require lot size.
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@Mindset: have you done something on this, NT7 compatible ?
I've planned to do something like these tools, but didn't start yet (it's for NT7, I'm waiting the end of the beta for obvious reasons).
I had a look at the software, and definitely I do not need it. This does not mean that it is useless. But position sizing is really simple.
First Step - Select your Default Values
(1) Define acceptable $$$ risk per trade. A typical amount would be $ 300 for an account of $ 30,000 (corresponding to 1% of equity).
(2) Know your default money management stop, for example 12 ticks for ES. This default stop should be in line with the logical stops required to trade your setups.
(3) 12 ticks of ES are 3 points or USD 150 per contract. Not difficult to calculate that you can trade 2 contracts.
Second Step - Set up an ATM Strategy to Trade Your Defaults
Setup a strategy with 2 contracts and a stop-loss of 12 points. Then you may add a first target of 12 ticks (1 contract), and a trailing stop (1 contract) or something else. If you enter a trader, NinjaTrader will automatically set the required brackets.
Position Sizing
You never ever exceed the intial stop of 12 ticks. If your setup requires more than 12 ticks, you do not take the trade. If your setup requires less than 12 ticks, you manually adjust the trade after you entered the position or keep it as a mental stop, the hard stop being your money management stop of 12 ticks.
Rule of Three
If your initial stop is equal or less than 6 ticks (which is half of your default money management stop), you can double your position size for equal risk. This leaves you with 3 alternatives for position sizing.
I do not need any software to do that for me. I know that I will take 2 contracts if my stop is 12 ticks and that I can take 4 contracts if my stop is 6 ticks. The first alternative is automated via ATM. For the second alternative, I proceed as follows
- open a position with 2 contracts
- adjust stop to 6 ticks, if possible
- add another 2 contracts if market confirms direction
If you are a scalper you can also directly hard-code your second ATM strategy by selecting a stop of 6 ticks and 4 contracts.
Use EXCEL
I have an excel sheet, where I have calculated typical position sizes for all instruments, based on my risk allowance and volatility (average true range). But this is only required to define the appropriate default values for the money management stops.
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I have been careful not to bash the product, but have simply explained why I prefer to use Excel. I am not trading hundreds of different instruments, but just a few, and they are all denominated in USD or Euro. With my Excel sheet and a Rule of Three I am as fast to enter any position, as I would with a position sizer.
This does not mean that the product is bad or offers no advantage. Position sizing is an important subject and has a huge impact on profitability. Once you have a reliable trading system, it is position sizing that determines the profits. I know the original Kelly paper and the book by Ralph Vince on The Mathematics of Money Management.
Serious vendors offer a free trial of their software. I am currently testing MultiCharts for 4 weeks and I have a rather favourable impression. This product has a 7 days trial period, which is a bit short to come to a conclusion. But at least there is no reason not to go for the trial. With the trial it is possible to judge whether the product is worth the money, and there will certainly be different opinions.
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Why would anyone need such a tool in the futures market ? After all, we don't have fractional lot size or contract size. You could simply decide to handle 1 contract by chunk of $5000US in your account or use any other value you feel appropriate. You don't even need Excel to determine that. Simple common sense is all that you need.
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This is too easy. I use NinjaTrader to run ATM strategies, and the question arises indeed, how to adapt the stop loss size to volatility, exchange rate and risk allowance. This is what I do once per week:
Input Values: Maximum Risk, Exchange Rate, ATR(36) of a 5 minute chart and Spread
(1) I first enter two values as input -> maximum risk per trade and current exchange rate EUR/USD -> see red fields in the excel sheet below
(2) Then I measure the lowest and highest value for the ATR(36) on a 5 min chart that could be found during the RTH session (my trading times) over the last week, not including holiday sessions.
Money Management Stop-Loss is calculated as ATR(36) plus Spread
I assume that the ATR(36) of the 5 min chart is a reasonable value for my money management stop-loss as required by my setups. Starting from these values I calculate the stop loss in ticks and the number of contracts that I am allowed to trade.
Notes to the Spreadsheet below by Column
A: Instrument
B: Contract Month
C: Tick Size in points
D: Minimum measured for ATR(36) in points
E: Maximum measured for ATR(36) in points
F: The assumed spread, which is added to the ATR to determine the stop loss
G: The stop loss calculated from volatility: Mean of minimum and maximum ATR + spread
H: The selected stop loss, manually adjusted to avoid an uneven number of contracts
I: Contract Multiplier
J: TickValue
K: StopValue in Local Currency calculated from selected stop loss
L: StopValue in Euro converted from local currency
M: Risk allowed in Euro
N: Number of contracts that can be traded calculated from stop loss value
The two red fields are manual inputs. The blue field are taken from a 5 min chart that covers the last week. The two orange columns are my outputs that I use to enter my default strategies for the instruments.
If volatility changes for an instrument, I may have to adjust contract size. The whole process takes a few minutes. The advantage of doing this manually is that a change informs me about different market conditions, in case that I did not realize it during the week.
Result
For the next week I am allowed to trade 6 contracts of TF with a stop loss size of 14 ticks, or alternatively I can trade 4 contracts of CL with a stop loss of 20 ticks. In case that my calculations are wrong, at least it was myself who committed the error and I can take full responsibility for it. The approach is similar to the PositionSizer.
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