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2011

Trevor Neil’s Master Class: Position Sizing

Trevor Neil BETA Financial Learning & Development Limited 04/08/2011

If you do not understand this and have a grip on it. The surgeries are aimed at improving investor/trader skills and are not training in using Eikon. Metastock or 3000Xtra. Please ask you Thomson Reuters Trainer for help with the terminal itself. The purpose is to for you to gain a comprehensive understanding of technical analysis and market timing. It is for educational purposes only. you should not be trading. They are given remotely and live via WebEx and you can interact. A full and detailed manual is subsequently provided for attendees. 10am London time and at noon New York time. Please ask you Thomson Reuters Trainer for help with the terminal itself. Trevor Neil will share with you his market timing skill and experience. These are more advanced sessions concentrating on trading techniques. A full and detailed manual is subsequently provided for attendees. They are practical rather than theoretical. They are for educational purposes only. There is a small formula to use to ensure capital preservation while exposing yourself to enough risk to make a profit. There is an open question and answer session at the end. sometimes asset class specific. there are no recommendations implied or buy or sell signals generated.Trevor Neil’s Master Class On the first Friday of each month at 2pm Singapore Time. As well as the usual manual. Trevor Neil’s Friday Technical Analysis Surgery On the third Friday of each month at 2pm Singapore Time. Here we take a small subject and cover it in detail. There are no investment recommendations implied in the examples. The surgeries are free and aimed at improving investor/trader skills and are not training in using Eikon. Trevor Neil holds a 45 minute technical analysis surgery looking at a specific aspect of technical analysis. Charts and Data All Charts and data are from Thomson Reuters and Eikon is used for analysis Position Sizing This session looks at the size of a trade that is appropriate. There is a small charge for the Master Class manuals. They are given remotely and live via WebEx and you can interact. They are for educational purposes only. . 10am London time and at noon New York time. As always. Metastock or 3000Xtra. There are no investment recommendations implied in the examples. Trevor Neil holds a 45 minute technical analysis surgery looking at a specific aspect of technical analysis. a small excel sheet will be supplied. There is an open question and answer session at the end.

He is Consultant Editor of The Technical Analyst Magazine. the „70‟s. It was moving from the pencil. These are usually in the form of a two-day course. BETA L&D Ltd offers institution skill enhancing seminars in the areas of market timing and behavioural finance. including trading system development and the production of „white label‟ technical analysis research.uk. the afternoon of the second day is held as a workshop in the local Thomson Reuters office. There are open course and in-house tailored events for many of the world‟s best dealing desks. ruler and graph paper to the PC. They also offer market consultancy. The events are held in a local central hotel and. This means attendees have a terminal each have a Reuters terminal to practice what they Page | 3 www. He served for many years on the board of The Society of Technical Analysts which awarded him MSTA. along with many commodities traders‟ he moved into financial futures. Continuous Professional Development (CPD) More and more regulators and professional bodies insist that members continually update their skills to ensure that they remain at the top of their careers. if possible. When LIFFE opened. If you require a certificate of attendance. He has written many articles and is a popular conference speaker all over the world. He is now a director of BETA Group and works with traders at a large UK hedge fund offering a timing overlay. He worked as a broker. It was then he became interested in technical analysis. This course counts as 60 minutes towards your required CPD Cycle and one CPD point for securities reps in the US. At the time. analyst but always in the area of technical analysis. In 1999 he became head of technical analysis at Bloomberg which he did for four years overseeing the development of charting on that platform. BETA Group The BETA Group consists of BETA Financial Learning and Development Limited and BETA Educators Limited. fund manager. This £15 million fund trades a diversified portfolio and is 100% technically driven. He left to form a successful hedge fund based in South Africa. In 2010 he has started a small new hedge fund to trade his own funds. Technical Analysis in the Dealing Room. He moved into other „softs‟ and then became a broker. please send an e-mail to yvette.uk BETA Group©2011 . BETA Group can facilitate this process by courses that are of benefit to the financial services professional. He is an International Advisor to the MTA Foundation which promotes the understanding and adoption of technical analysis at universities. technical analysis was changing. Forex and derivatives markets.co. he remains and active trader in the equities. He became very involved in the early stages of the development of computerised technical analysis. As such. He travels all over the world to give them with the help of Reuters Academy.co. starting at the age of 18 as a coffee floor trader for Merrill Lynch. BETA Group’s Open Seminars Trevor Neil gives frequent open seminars on market timing. Both also expect the individual to manage their own CPD based on their own needs and the needs of the organisation they are part of.burfin@betagroup.betagroup. then Forex and later equities.Common ways to size trades 3 Trevor Neil Trevor Neil has been a trader for over 30 years.

We have run courses in local languages in France and West Africa. time-frame and learning objective.Common ways to size trades 4 have been taught and to run through current case studies. portfolio managers and others in small groups – often five to ten – at their offices. These vary in length and content.uk for details.betagroup.betagroup. we can work in the evenings. Elliott Wave. Make sure he comes to your City. please contact your local Thomson Reuters Knowledge Manager and ask them to contact us. He will be visiting Scandinavia.betagroup. options techniques and strategies and trading psychology and profiting from behavioural biases. These in-house seminars can be surprisingly economical and certainly beneficial in this environment. If enough of you ask your Thomson Reuters Knowledge Manager to book him. We are flexible.uk/courses or Knowledge Network. analysts. We can run seminars for new starters to advanced subjects such as Ichimoku. Want a Seminar near you? In the last 12 months BETA Group has run about 50 seminars with Thomson Reuters in Europe. Ask paddy. Trevor Neil will come. Apart from our open seminars in 2010 we have taught about 300 traders.uk BETA Group©2011 . Asia and Australia in the second half of the year. These seminars focus on your securities.co. at the weekends. North America. They book us to come if they see there is demand. See www. If you would like seminar run in your city.co.co. Market Profile and Short Term Trading Techniques for experienced professionals. Middle-East. In 2009 we started offering our popular Technical Analysis in the Dealing Room in French. This ensures near one-to-one attention from Trevor Neil during the two days. Eastern Europe.osborn@betagroup.burfin@betagroup. The seminar numbers are limited to just ten.betagroup.uk for details Coaching and Mentoring This is the ultimate option. See http://www.co. Africa and Asia. In this way the course content can be totally personalised. Colleagues at BETA Group offer seminars in Risk related matters. In this Page | 4 www. We can even run seminars for your clients as part of your marketing effort too. It is designed to prepare you for Level I of the CFTe qualification if you wish or to get you fully competent as a trader.co. These are totally individualised skill enhancement programs. BETA Group’s In-house Seminars We run specialised seminars for firm tailored to your firm‟s needs. ensuring that all attendees get the maximum benefit from these mentoring sessions. To see what we have planned in conjunction with Thomson Reuters see www. whatever suits your desk. It is not cheap but you can benefit from decades of experience and skill in a short period in time. Ask yvette.uk for details e-Learning We have developed an e-Learning course in technical analysis which you can do at your own pace and convenience.uk/elearning for this exciting new service and details of the IFTA qualification.co.

Common ways to size trades 5 way. Mentoring is usually given on a one-to-one basis via a WebEx call.uk BETA Group©2011 . with your branding. to the highest standard and at an economical price. Page | 5 www.betagroup. it is actually an incredible bargain.co.burfin@betagroup.uk for details and a sample of our work. BETA Group can produce regular research to your specification. Ask yvette.co. “White Label” Research At BETA Group we have the skill and resource to write white label technical analysis research for your firm.co. This is a cost effective solution for firms who would like to have this powerful marketing tool but do not have the budget or ability to produce it. and the less expensive alternative.uk for details of our coaching.osborn@betagroup. Ask paddy. our mentoring services.

The content is designed to meet your learning objective.betagroup. Algorithmic trading.co.betagroup.uk and click on Calendar. His experience and his ability to bridge the gap between the books and theory of technical analysis and the practical difficulties of taking a trade confidently have been recognised by those attending his seminars.burfin@betagroup. Ichimoku Charting. covering your markets in your time frame.co. Short Term Trading Techniques. United Kingdom www.uk. with Thomson Reuters marketing help. tailored for spot trader.co.uk for details of his calendar of seminars.co. If you would like to attend one of BETA‟s seminars go to www. If you would like Trevor Neil to come to your institution to give a seminar in person. Send a message to yvette.co. Subjects covered are technical analysis at all levels. Go to www. analysts and portfolio managers improve their market timing skills. These seminars are very popular. fixed income analyst (or whatever) and specialised subjects like Profiting from Behavioural Finance.burfin@betagroup. Many firms ask him to give a tailored seminar in-house. please contact yvette. BETA Learning & Development Ltd Pantiles Chambers 85 High Street Royal Tunbridge Wells Kent TN1 1XP. DeMark Studies. These seminars are chargeable but.uk Tel: +44 189250 6864 Fax: +44 870 622 1624 Page | 6 www. You can request Reuters and BETA Group to run a seminar in your City by sending a message to your Thomson Reuters Training Manager.betagroup.uk BETA Group©2011 . equity trader.uk that can send you details of availability and cost structure. They are economical too for just five or more people. You can also look for his seminars in your area by going to Reuters Academy on your terminal. they are able to keep the fee to well below the price of many different investment courses. These sessions can be economical and requires a low minimum number of people.betabroup.Common ways to size trades 6 Trevor Neil MSTA MCSI Trevor Neil personally runs seminars all over the world helping traders.co.

................................. 13 Robustness ..........betagroup.................. 5 Trevor Neil MSTA MCSI....... 4 Coaching and Mentoring ............................................................................. 12 Draw-down ... 3 BETA Group‟s Open Seminars ...................................................................................................................................................................... 2 Trevor Neil‟s Friday Technical Analysis Surgery .................................................................................................................................................................................................................................................................... 6 Common ways to size trades ................................................... 4 e-Learning ............................................. 3 BETA Group .................................................................................................................................................................................................................................. 9 Optimal f ...................................................... 2 Trevor Neil ........................................................................................................................................................ 4 BETA Group‟s In-house Seminars ............................................ 2 Charts and Data................................................................................. 4 “White Label” Research ..................................................................................................................................................................................................................................... 8 Trade size based on risk .........................co...................uk BETA Group©2011 ................................................... 3 Want a Seminar near you? ................................................................... 12 Generating a Monte Carlo sequence ....................................................................................................................................................................................................................... 8 Martingale and anti-Martingale ...........................................Common ways to size trades 7 Contents Trevor Neil‟s Master Class .......................................................... 14 References ................... 14 Page | 7 www......................................................................................................................................................................................................................................................... 3 Continuous Professional Development (CPD)........................................................................................................... 11 Monte Carlo........................................................................................................................................... 2 Position Sizing ..

except for fixed contract position sizing. e. If you trade forex it is the amount in dollars or yen. it‟s the number of shares to trade. The number of contracts or shares increases by one for each “delta” amount of profit earned per contract. Margin Target. Leverage is defined as the ratio of the value of the position to the account equity. The same number of contracts or shares is applied to each trade. for example. The number of contracts or shares is determined so that each trade risks a specified fraction of the account equity. if 1000 shares of a $30 stock are purchased with a $25.” John Wiley & Sons. a string of losses could force you to stop trading. and the current number of contracts is two. The per cent volatility method sizes each trade so that the value of the volatility. his book “Portfolio Management Formulas. and smooth the equity curve. For example. Martingale and anti-Martingale With each of these methods. as represented by the average true range (ATR). if the delta is $3000. the leverage would be $30.co. This method sets the position size so that the leverage of the resulting position matches the selected target.g. e. Position sizing methods that use this approach are known as anti-martingale methods. Fixed fractional position sizing has been written about extensively by Ralph Vince. If you trade stocks. it‟s the number of contracts. Position sizing is particularly important when leverage is involved. much of your account equity will sit idle. Fixed Ratio.. improve the risk/return ratio.g. Anti-martingale Page | 8 www. Leverage Target. Position sixing can be used to ruin you. Fixed fractional (also known as fixed risk).. Percent Volatility. If you trade too many futures contracts.000/$25.. reduce risk. as with futures and forex trading. among other goals. which will hurt your performance. Margin target position sizing sets the size of each position so that the chosen percentage of account equity will be allocated to margin. Common ways to size trades There are many different ways to vary the number of contracts or shares when trading. See. is a specified percentage of account equity. Fixed dollar amount of equity. It is the process of determining how much to trade. For example. Finding the right balance is a key element of risk management. A fixed dollar amount of account equity is needed for each contract or share. 2% of account equity is risked on each trade. Some of the most commonly used methods are listed below. the number of contracts or shares increases as profits accrue and decreases as the equity drops during a drawdown. if you choose a margin target of 30%. For example. New York. then 30% of the account equity will be allocated to margin.2. e. you‟ll need $6000 of profit before increasing the number of contracts to three. Position sizing is one of the key elements of money management.g.betagroup. 1990.000 or 1. On the other hand.000 account. Position sizing can be used to increase returns.uk BETA Group©2011 . $5000 of account equity per contract. Fixed size. If you trade futures or options. two contracts per trade.Common ways to size trades 8 Most trading experts agree that money management is one of the most critical aspects of trading. if you trade too few contracts.

e. One method of sizing short-term trades based on this principle is fixed fractional position sizing. Two ways to do this are via dependency rules and using equity curve trading. Equity is the current value of account equity (i. Both of these methods can be used in addition to whichever position sizing method you choose. However. This was the approach Vince adopted in his book Portfolio Management Formulas. such as one of those listed above. you might risk 2% of your account equity on each trade (the 2% rule). See references below. This is an example of a dependency rule for systems with positive dependency. While martingale methods are not recommended by themselves. The alternatives. Provided you have a profitable trading method. similar to martingale methods. Trade size based on risk It‟s a common axiom of investing that the greater the risk the greater the reward.Martingale and anti-Martingale 9 methods take advantage of the positive expectancy of a winning trading system or method. For example. to each trade.. The idea behind the fixed fractional method is that you base the number of contracts or shares on the risk of the trade. If your trading strategy doesn‟t use protective (money management) stops. For example. your trading method is inherently profitable). If you have an “edge” with your trading (i.uk BETA Group©2011 . you should use an anti-martingale method.betagroup. who trade against the house‟s advantage.e. The risk of a trade is defined as the dollar amount that the trade would lose per contract or share if it were a loss. Resume taking the signals until a loss is encountered.co. f is the fixed fraction (a number between 0 and 1). Commonly. Fixed fractional position sizing has been written about extensively by Ralph Vince. if your trading system or method tends to have long winning and losing streaks. Martingale methods are most often used by gamblers. A commonly used example is “doubling down” after a loss in gambling. you could stop taking the trading signals when the moving average of the equity curve crosses below the equity curve line. the trade risk is taken as the size of the money management stop applied. the value of account equity just prior to the trade Page | 9 www. it might be beneficial to skip trading after a loss until the first skipped trade would have been a winner. these adjustments to the antimartingale methods listed above can sometimes prove beneficial. the risk can be taken as the largest historical loss. known as martingale methods. Alternatively. decrease the amount at risk after a win and increase the amount at risk after a loss. For example. anti-martingale methods are always preferable over the long run because they‟re capable of growing your trading account geometrically. The equation for the number of contracts or shares in fixed fractional position sizing is as follows: N = f * Equity/| Trade Risk | where N is the number of contracts or shares. Fixed fractional position sizing is also known as fixed risk position sizing because it risks the same percentage or fraction of account equity on each trade. you might try trading the equity curve. it‟s sometimes possible to lower your risk by taking advantage of patterns of wins and losses. Resume trading when the moving average crosses back above the equity curve.. if any.

A 1% fixed-fraction bet would. no matter how much we win or lose. it is theoretically impossible to go entirely broke so the official risk of total ruin is zero Simulation Let‟s start trading (betting): Fixed Bet $10 Fixed-Fraction Bet 1% Start 1000 1000 Heads 1020 1020 Tails 1010 1009. The vertical bars (|) mean that we take the absolute value of the trade risk (risk is usually given as a negative number. and Trade Risk is the risk of the trade per contract or share for which the number of contracts or shares is being computed. as in fixed-betting systems in general.70 Page | 10 www. so we make it positive). In the table below we compare the effects of these two position sizing systems.Martingale and anti-Martingale 10 for which you‟re calculating N).e we win $20 and lose $10 when we lose. Why is Fixed Fractional trade sizing superior to Fixed dollar or Fixed sizing? Let me demonstrate with a betting example.co.80 Heads 1030 1030 Tails 1020 1019. In each case we will always bet $20 on Heads and we have a 2:1 profit loss ratioi. The result of the first trade (bet) is the same. say $10 each time. our $1.000. This is a Fixed Size system. our fixed-fraction bet stays in proportion to our equity.betagroup.uk BETA Group©2011 . With a Fixed Fractional trade size (bet). since the bet stays proportional to the equity. The first way to define the bet is to make it a constant fixed amount. But it changes over time. Firstly. for our experimental betting system we must define the bet. as our equity rises and falls. also lead to a $10 bet. One interesting artefact of fixed-fraction betting is that. on our original $1.000 equity might increase or decrease to the point where the $10 fixed bet becomes proportionately too large or small to be a good be We also run the same experimental betting system where we define the bet as Fixed Fraction of our equity. This is a simulation of a good trading system and the effect trade size has on it in the long run. In this case.

which provides the fixed fraction that maximizes the geometric growth rate for a series of trades where all the losses are one size and all the wins are another size.betagroup. the optimal fixed fraction is given by the following equation: f = ((B + 1) * P – 1)/B where B is the ratio of a winning trade to a losing trade. Also note that the results depend on the numbers of heads and tails and do not at all depend on the order of heads and tails. and P is the percentage of winning trades.20. however.78 Heads 1060 1060. This is a generalized version of a classic formula called Kelly‟s formula. Optimal f calculates the fixed fraction that maximizes the rate of return for a given series of Page | 11 www. Optimal f position sizing extends the Kelly formula so that the wins and losses can all be different sizes. which allows the trader to more fully utilise the available account equity.58 Tails 1050 1049. called optimal f position sizing. the fixed-fraction system grows exponentially and surpasses the fixed-bet system that grows linearly.09 Tails 1030 1029.00 or $10. the number of contracts or shares per trade drops when account equity declines after a series of losses. On the second toss. The results from both these systems are approximately identical at the start. Optimal f Fixed risk position sizing can be used to implement another one of Vince‟s methods.co. the fixed bet system loses $10.00 (twice the bet) on the first toss that comes up heads.00 while the fixed-fraction system loses 1% of $1. reducing the impact of subsequent losses. In this case.97 Both systems make $20.020. leaving $1.Martingale and anti-Martingale 11 Heads 1040 1040. Likewise.28 Tails 1040 1039.80. In fixed fractional position sizing.uk BETA Group©2011 .009.69 Heads 1050 1050. Over time. the number of contracts or shares per trade increases over time as profits accumulate.

as represented by the list of trades.co.Monte Carlo 12 trades. Monte Carlo analysis is a computational technique that makes it possible to include the statistical properties of a model‟s parameters in a simulation. One way to assess risk is by testing your strategy over historical market data to see how well the strategy would have done in the past. is sampled to generate a trade sequence. Also. for example. While this sounds like a good idea. In Monte Carlo analysis. which are more conservative and also tend to be more accurate when used as predictions. Consequently. Without Monte Carlo analysis. fixed fractional position sizing. Before trading the markets with real money. the standard approach for calculating the historical rate of return. would be to analyse the current sequence of trades using. in practice the optimal f value (or the f value from the Kelly formula) often results in drawdowns that are too large for most traders to tolerate. Monte Carlo A less risky alternative to optimal f is to optimize using Monte Carlo analysis and with a specified limit on the maximum allowable drawdown.uk BETA Group©2011 . the drawdowns in the future could be much larger than predicted by the historical sequence of trades. The output is therefore also a statistical distribution. on the other hand. the trade distribution. a probability or confidence level is assigned to each result. the rate of return as determined by Monte Carlo analysis might be 83% with 95% confidence. Each such sequence is analysed. 95% had rates of return greater than or equal to 83%. Performing a Monte Carlo analysis on the trade sequence is one way to generate a more conservative estimate of the future worst-case drawdown. When using use Monte Carlo analysis to simulate trading. one of the drawbacks is that the future is never exactly the same as the past. As a result. and the rate of return is expressed with a probability qualifier. This means that of all the thousands of sequences considered. It might be found that the rate of return over the sequence was 114%. For example. the Monte Carlo method produces more meaningful results. relying on the historical sequence of trades is risky in that the sequence of profits and losses in the future may be less favourable than what was encountered historically. This will generally yield a much smaller and therefore less risky fixed fraction than Optimal f. Drawdown is often used as a proxy for the risk of a trading strategy. While this socalled back testing approach is very helpful. Employing Monte Carlo analysis can help to address this problem. and the results are sorted to determine the probability of each result. it‟s essential to understand the risk of the trading strategy or method you intend to use. say. hundreds or thousands of different sequences of trades are analysed. Compared to a simulation method that doesn‟t include random sampling. which are randomly sampled to produce the model‟s output. Page | 12 www. the random variables of a model are represented by statistical distributions. With Monte Carlo analysis.betagroup. improving the calculation of the drawdown enables a better estimate of the risk of a trading system or method. Draw-down Monte Carlo analysis is particularly helpful in estimating the maximum peak-to-valley drawdown. In this way.

with each trade included once. we might find. there are two ways to generate the sequence of trades in a Monte Carlo simulation. In using a Monte Carlo approach to calculate the drawdown. the sequence of trades has a very large effect on the calculated drawdown. While this technique might be useful as a way for a trader to pyramid up to his optimal position. Moreover. Looking at the results in aggregate. we‟re basing our calculations on a sequence of trades we know won‟t be repeated exactly. Another possible sampling method is random selection with replacement. streaks of heads or tails do occur. The process is then repeated several hundred or thousand times. as it becomes profitable. In selection with replacement. The benefit of selection without replacement is that it exactly duplicates the probability distribution of the input sequence. pyramiding and other trend-trading techniques can be effective. a trade could occur more than once in the new sequence.uk BETA Group©2011 . such as secular trends in security prices. this may limit the accuracy of certain calculations.co.betagroup. however. If you have a short sequence of trades (say. you could get a very large drawdown. The drawback to selection without replacement is that the randomly sampled sequences are limited to the number of trades in the input sequence. Pyramiding is a method for increasing a position. If this method were used. might have a negligible drawdown. To the extent that tinkering allows Page | 13 www. we do know it will be different. We would interpret this to mean that there‟s a 95% chance that the drawdown will be less than 30% when 4% is risked on each trade. less than 30 trades). for example. which is in itself random. no way to exploit this phenomenon. The same trades arranged in a different order. If you choose a sequence of trades where five losses occur in a row. In general.Monte Carlo 13 Although we can‟t predict how the market will differ tomorrow from what we‟ve seen in the past. whereas selection with replacement may not. This method of sampling the trade distribution is known as random selection without replacement. the sequence of those trades is largely a matter of chance. such that the losses are evenly dispersed. the historical sequence of trades is randomized. In non-random processes. Calculating the drawdown based on one particular sequence is somewhat arbitrary. Pyramiding In the case of a random process. Even if the distribution of trades (in the statistical sense) is the same in the future. that in 95% of the sequences. pyramiding on top of an already-optimal position is to invite the disasters of over-trading. the drawdown was less than 30% when 4% of the equity was risked on each trade. If we calculate the maximum drawdown based on the historical sequence of trades. Generating a Monte Carlo sequence In general. such as the drawdown. One option is to construct each sequence of trades by random sampling of the same trades as in the current sequence. There is. such micro-tinkering with executions is far less important than sticking to the system. such as coin tosses. and the rate of return and drawdown are calculated for the randomized sequence. trades would be selected at random from the original list of trades without regard to whether or not the trade had already been selected. since it would be quite improbable to have a regular alternation of heads and tails.

uk BETA Group©2011 . I double it. I‟ve known it to be flat and lifeless for years as it moved to being an asset to protect against fear and uncertainty into a conductor of electricity in over-supply. Robustness The problem with all this and often missed by our Quant friends is that the worse is always ahead of us and not behind us. 2007. However.” John Wiley & Sons.betagroup. Portfolio Management Formulas. 1999. The worse run of bad trades you ever saw is only the worse run you have seen. McGraw-Hill. New York. The markets are always changing. The Martingale system is a method for doubling-up on losing bets. the method re-doubles and so on. as provided by Ralph Vince. How do you cope with this? How do you use your experience up until now to judge how to position size and money manage in the future? Here is Trevor Tip: The solution is to multiply the historic „worse‟ of all your data by a factor which you find acceptable. New York. Gold is in a strong trend now. You have no idea whether the worse loss you have ever seen is anything like as large as one you will suffer in the future.Robustness 14 a window for further interpreting trading signals. This is often underappreciated.co. New York.” 2nd ed. the worse period „under water‟ the worse anything and multiply it by a safety fact. Take the worse drawdown. Optimal f is covered in Ralph Vince’s book “Portfolio Management Formulas. You can be confident a worse run lays ahead. It may have been the worse so far but the worse is certainly ahead of you and not behind you – remember this.uk Page | 14 www. 426-8. one day a losing streak will stab you. References Fixed ratio position sizing was developed by Ryan Jones in his book “The Trading Game. It‟s a guess but it does make some allowance for the worse being ahead of you and hopefully it does so sufficiently to give you a long trading life. In case the doubled bet loses. Tharp’s book “Trade Your Way to Financial Freedom. it can invite hunch trading and weaken the fabric that supports sticking to the system. although you may rely on it being so for your future trading survival. Kelly‟s formula. New York. 1990. Certainly these methods increase our confidence in a method of trading and position sizing will be effective in the future. the worse string of losses. pp. The worse you have had may not have been a particularly bad one.” John Wiley & Sons. there is no certainty. John Wiley & Sons. 1990 For details of the Per Cent Volatility technique see Van K. This method is like trying to catch a falling sword.betagroup.. All this work is on past events. All books are available from www.co.