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I'm playing with an intraday system for trading the spoos, and I'm now
at the point where I'm thinking about various position sizing strategies.
I've read about optimal f, I've looked at various other strategies and EL
code, and I've come to the conclusion that something based on net
profits is what I want to use. I know stuff like this has a lot to do with
the individual, goals, risk tolerance, etc. but I'm wondering if there is
a general consensus as to which strategy or strategies are best? I
read about one relatively simple strategy in Charlie Wright's book
that is based on net profits and goes something like this:
AccountRisk = NetProfit * RiskPercent;
Num = AccountRisk / WorstCase;
If Num < 1 then Num = 1;
RiskPercent is the percentage of net profits that you want to risk,
and WorstCase is a worst case stop loss. In other words, aside
from gaps that go against you WorstCase is the biggest loss the
system will tolerate. Anyway, this simple strategy seems to make
sense but there's one thing that bothers me ... and that's the fact
that the worst case stop loss varies based on the number of
contracts one is trading. For example, if you're trading one contract
and have a worst case stop loss of say $1000, that's fine and dandy,
but obviously one isn't going to use the same $1000 stop loss if 5
contracts are being traded. And since the above code needs to
know the worst case dollar loss in order to determine the number
of contracts to trade, but the worst case stop loss can't be figured
until one knows how many contracts are being traded, it doesn't
seem like there's a way to code this. Am I missing something, or
is this too simple of a strategy that won't work in the real world?
I know this is a popular topic, and I've been reading through as
much of the archives as I can, but if anyone has any ideas for
me I'd love to hear them. If you have a position sizing strategy
that works for you in live trading and care to share ... please do.
Thanks,
Jess
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