Trade Size by Malcolm Morley

Trade Size by Malcolm Morley

This comment only scratches the surfaces of what is one of the most important topics of all, but it does establish the basic criteria in the right sequence.

This comment only scratches the surfaces of what is one of the most important topics of all, but it does establish the basic criteria in the right sequence.

I don’t think you can set trade size and then decide on your s/l. It should be the other way around.

First you decide the maximum % of your account you are prepared to lose if the trade fails in a worst case scenario.

Then you decide how wide your stop needs to be to accommodate things like normal market movements and the nature of your strategy, etc.

Finally with these two bits of information you can work out your trade size by simple maths.

Full discussion: http://www2.oanda.com/cgi-bin/msgboard/ultimatebb.cgi?ubb=get_topic;f=15;t=001398;p=1#000004

Now if you want to know how I set my trade size… this is a description of the method I use, which I normally refer to as Variable Fractional Percent (VFP)
If you want another money management idea that is very responsive to performance, yet doesn’t make you make too hard decisions up front try this:

Firstly you need to know your daily Net Asset Value (NAV) gain or loss in percent.

Start trading at a conservative 5% FFP (or whatever suits you). But instead of using a Fixed Fractional percent, you use a range say 2%-25%. Move up and down the scale by adding or subtracting half of your last daily NAV percentage.

For example start at 5% FFP

Next day profit on trades = 1.5%
Therefore your next FFP = 5 + (1.5 * 0.5 ) = 5.75%

Say you then lose 3%
Next FFP = 5.75 + (-3 * 0.5) = 4.25%

Obviously use ranges and a daily factor (here 50%) that suits you, but you’ll find this method really rewards good methods, and lightens up very quickly on bad.

I use it myself, and find it very sound.

~chaffcombe

I have lived and breathed trading ever since trading fx professionally in London, Toronto and Philadelphia in the early 70’s (yes I know that shows my age!). While my professional career subsequently took me from the trading desk to designing treasury systems for some of the world’s leading financial institutions, my desire was to always trade for myself. As a consequence, following 5 years with a major international stock-broker

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