Being Proactive With Position Sizing

position sizing

Published September 14th, 2021

How can we be proactive with position sizing?

Drawdowns, or a decline in equity, are part and parcel of trading.

How you cope with drawdowns will determines how successful you will be as a trader.

I’ve written about this topic numerous times, more recently, “How to Handle Drawdowns” and “Drawdown Diagnosis“.

The famed Turtle Traders used an interesting strategy, albeit I’m sure those surviving Turtles have modified this to some degree.

They were instructed to decrease the size of their trading account by 20% each time the strategy drawdown reached -10%.

So if the starting capital was $100,000 and the account slips to $90,000, then, from that point on, position sizing would be based on an account size of $80,000.

If the account then slipped to $82,000 (0.10 * 90,000) then the account balance for position sizing would drop to $64,000.

Only after the account recovered to the prior levels would the account balance for position sizing revert back.

Personally I don’t use this technique, mainly because I use a fixed percentage allocation method and a systematic approach.

However, if you’re a discretionary trader and use a fixed fractional position sizing model, then this could be a method to explore.

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