[The Pip Thief]

Hello,

It is not me saying this but it is proven by all the top traders of the world that the % Risk Model of Position Size Theory is the best. You should be risking a percent of your balance.

Example - Balance 100,000 and you risk 1% then you risk $1000 per trade. Then this naturally allows you to risk more as you win and risk less as you lose. How? Well if you lose $10,000 then you now have $90,000 and 1% of that is $900.

I use PositionSizer to do all this for me and get the order off to the broker in seconds. I could not do these calculation without PositionSizer, actually I could but it would take 60 seconds to get the order sized and to my broker versus 4 seconds with PS.

Check out the pics that show how % Risk Position Size Model works.

The Pip Thief

[macdfx]

Originally Posted by brownsfan019 »

Sounds so easy, doesn't it?

Just trade 3 contracts and go for 35 ticks and off you go!

Better yet - trade 50 and only need to go for 5 or 10 ticks.

And that's the rub. It's the discipline in your setups and your position size that matters.

If it were that easy then why not trade the 50 lot? Notwithstanding margin/account size issues, the reality is that you'll blow out your account really quick.

You probably know this already, but chose to throw in a snarky reply as a way of showing us your "market knowledge".

My point? Keep the position size small, manage the setup, trade and exits, and honor your stops.

[brownsfan019]

Originally Posted by macdfx »

And that's the rub. It's the discipline in your setups and your position size that matters.

If it were that easy then why not trade the 50 lot? Notwithstanding margin/account size issues, the reality is that you'll blow out your account really quick.

You probably know this already, but chose to throw in a snarky reply as a way of showing us your "market knowledge".

My point? Keep the position size small, manage the setup, trade and exits, and honor your stops.

My point was that if it was that simple, everyone here would be multi-millionaires. You'll find out soon enough that it's not.

Is that 'market knowledge'? I do not know what you define as market knowledge, I am speaking from real experiences.

The numbers look great when you make assumptions but as dinero could explain, it's not quite that simple when trading live w/ real money. Simulation is a different story (and useless).

[macdfx]

Quite useless, indeed.

Be well.

[sevensa]

Originally Posted by The Pip Thief »

Hello,

It is not me saying this but it is proven by all the top traders of the world that the % Risk Model of Position Size Theory is the best. You should be risking a percent of your balance.

Mind to expand who these top traders are and where and how they have proven this to be the best?

[BlowFish]

Despite what many think the majority of the quants in the business are not busy working on high frequency trading systems or even methods to get in and out of the market. Most are busy valuing stuff and modelling risk.

One method that does not require boffin level maths is using Monte Carlo simulation.

Worth repeating Risk of Ruin is probably going to be your key risk metric.

[The Pip Thief]

Originally Posted by sevensa »

Mind to expand who these top traders are and where and how they have proven this to be the best?

Hello Sevensa,

No worries! I would be glad too do that for you.

Ed Seykota-
He is best known for making over 250,000% in less than 20 years not counting withdrawals. Those are absolutely staggering numbers by any stand point. Quote was taken from “Definitive Guide to Position Sizing” by Dr. Van Tharp.

"First, I'd like to acknowledge Ed Seykota who first taught me the importance of position sizing, saying that success was 60% psychology, 30% position sizing, and 10% systems. Ed was also the person who taught me the value of using the market's money." – Dr. Van Tharp

Now Dr. Van Tharp has studied the profile of over 5,000 successful traders and has come to the conclusion that the # 1 determining factor in ones trading success is how they implement % Risk Position Size Models into their trading plan.

What it comes down to is that this system is not nearly as important as people think when they come into the trading business. It’s all about how you are sized and control your risk per trade.

By the way, Van Tharp invented the word "Position Sizing" after studying all these top traders.


Larry Williams-
He is an all-time great trader and educator. The statement below says it all.

"I'm probably best known for winning the Robbins World Cup Trading Championship, turning $10,000 into $1,100,000.00 in 12 months. That was real money, real trades, and real time performance. For years people have asked for my trades to figure out how I did it. I gladly oblige them, they will learn little there - what created the gargantuan gain was not great trading ability nearly as much as the very aggressive form of money management I used. The approach was to buy more contracts when I had more equity in my account, cut back when I had less. That's what made the cool million smackers - not some great trading skill." - Larry Williams

Anyone that makes turns 10 grand into 1.1 in a year has specialized knowledge that most traders do not know. He leads to the definition but does not give the exact diagram. After more study of this great trader he admits he uses % Risk Position Size Model. His secret is the money management and not the system, these top traders set themselves apart through this approach.

Michael Marcus-
Over a ten year period he multiplied his company account by an incredible 2,500%
Michael turned $30,000 into 80 million in less than 10 years.

All of these traders and others if you want me to quote some more give credit to % Risk Model of Position Sizing to be the number on factor in their success.

I mean you have to ask yourself. Pretty much every trader out there has access to the same buy and sell systems. How the hell are a couple of these traders turning 30,000 into 80 million in less than 10 years or 10,000 into a over a 1.1 million in a year. This is what I wanted to know and I found it. It is the % Risk Model of Position Sizing. I mean there are times when I have taken a trade of 1% risk and then made 10% in an hour. Then I started to understand.

The % Risk Model is the best! It lets you scale in or out and also lets you play with the markets money. What do you do when you are day trading and make 10% in an hour. Me, I risk 3% on the next trade and if I lose I quit for the day. If I win, and normally I would have won 3% when risking 1%, by risking 3% I now won 9%. This is what I have learned from these guys who multiply their money at these alarming rates.

Hope this helps. Check out the pic if you think you cannot with 10% in an hour by only risking 1%.

The Pip Thief

[Kiwi]

This is one of those funny arguments.

Both sides are right.

But


The problem with trading is that it isn't just one problem. And the ones that come from within after one has a working strategy are much harder to deal with than the one of finding a working strategy.

So, yes, in theory risk 1% per day on one trade with an expectancy of 35% and you're on you just scale up ... so easy ... but so so hard.