Position Sizing Fixed Fractional & Fixed Ratio

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Equity Preservation As a trader our goal is to grow our accounts, manage risk and be consistently profitable. By using proper position sizing we can apply the appropriate size “per trade” as our capital grows. In the event we take a drawdown we can use the same principles to reduce position sizing and risk.

Position Sizing Money management & position sizing involves 3 things: 1.Properly sizing your trades based off your account size and risk tolerance per market 2.Not overcapitalizing losing trades 3.Not undercapitalizing winning trades Key Considerations:  Each market has different contract specifications and levels of risk.  Each contract has different tick increments and different $ value per tick/point based on contract specification and size.  Please refer to the TJS trade journal/position sizing templates located in the members area to help with sizing your trades using fixed fractional and fixed ratio money management.

Stop Loss Sizes (SDV + PP)  The SDVolumeZones produces different sized zones depending on the market and timeframe used. Larger zones will have more risk Smaller zones will have less risk.  The SDVolumeZones calculates the average stop sizes based on entry preference: First Touch POC (Point of Control) VA (Value Area) VC (Volume Cluster)  The Print Profiler setups use the bar size (+) 1-2 ticks as these are bar close entries that use the bar range as the stop size.  Stop sizes are used for calculating our position sizing and money management decisions using our journal & spreadsheets.

Fixed Fractional Position Sizing  Fixed Fractional position sizing assumes that you want to limit each trade to a set portion of your total account, often between 1% and 2%. This represents that each trade will utilize the same % risk on your account which allows you to keep risk a constant factor. Larger SDV Zones will have less position size Smaller SDV Zones will have more position size Both utilize the same % risk you set for your trades. Equation: N = f(Equity/Trade risk) N = Number of contracts to trade f = Fixed fractional % risk you set Equity = Your account balance Trade Risk = The SDV zone size or (entry-stop loss)

Fixed Fractional Position Sizing Template

Fixed Ratio Position Sizing  Fixed Ratio position sizing's key parameter is the delta. This is the dollar amount of profit per contract to increase the number of contracts by one. A delta of $3,000, for example, means that if you're currently trading one contract, you need to increase your account equity by $3,000 to start trading two contracts. Once you get to two contracts, you need an additional profit of $6,000 to start trading three contracts and so on.  Fixed ratio position sizing was developed by Ryan Jones in his book "The Trading Game“ Equation: N = 0.5*{(1+8*P/delta)^0.5+1} N = Number of contracts to trade P = Total closed trade profit Delta = $ amount/contract to increase account by to increase position size ^ = represents exponentiation; that is, the quantity in parentheses is raised to the power of 0.5 (square root)

Fixed Ratio Position Sizing Template

Fixed Ratio (Parameter Considerations)  Having a larger “drawdown %” will produce larger risk therefore allowing for more size.  Having a smaller “drawdown %” will produce less risk therefore allowing for less size.  Having a larger “trades to ruin” will allow for more losing trades before reaching your max drawdown % therefore allowing less size and risk.  Having a smaller “trades to ruin” will allow for less losing trades before reaching your max drawdown % therefore allowing for more size and risk.  Both drawdown % and trades to ruin are subjective and individually based on your own risk tolerance therefore they must be selected by you individually to determine your size and risk tolerance.