FIXED FRACTIONAL POSITION SIZING CALCULATOR
It’s well and good to have a trading system that explicitly outlines both entry and exit rules, but without adding a money management application to your trading regime, you might as well throw in the towel and save your self a lot of money.
Some say that proper money management of your trading account is actually more important than the actual trading system itself. If that is the case, then the question arises – how should you set up your trading procedures so that 10 losses in a row will not bankrupt you?
The answer to that lies in how you determine how many contracts you will trade each separate trade. And the answer to that is to determine a % relationship between your equity available and the risk you are willing to take each trade.
For example: you want to trade the emini s&p contract. You start out with a $10,000 account. The value for each full point is $50 per contract, You are willing to set your stop loss at 2 points and you are willing to set your risk to equity at 2%. In other words, each lost trade would not exceed 2% of your equity. How many contracts would you be able to trade to fall within these parameters? The answer is 2. What if you wanted to set your stop to 4 points? How many contracts? 1. If you set your risk per contract at 3% and your stop at 2 points, how many contracts? 3. The variables can go on for a while.
If you max your risk at 2%, you would have to lose theoretically 25 losing trades in a row before you lost 50% of your equity. And how realistic is that? It sure lessens the fear and anxiety and stress. This approach might reduce your risk but it will also dampen and reduce the number of contracts you might have been traditionally trading. But don’t forget, as your equity rises, so does the number of contracts you trade.
There is an easy way to determine which configuration is best for you under any circumstances, and that is by using the SP Bankbook Trading System “Futures Position Sizing Calculator” spreadsheet. Best of all – it’s FREE. Instructions come with each calculator.
Follow the rules of your trading system and the number of contracts to be traded as determined by the Futures Position Sizing Calculator, and you will be around for a long time.
Just email me with your name. I will be glad to send you the spreadsheet that automatically determines the number of contracts to trade. Instructions accompany the spreadsheet.
Futures Position Size Calculator put to the test.
By far, the most important aspect of your trading is safety. Safety of your equity, that is. The risk of ruin should be so low, that it would be virtually impossible for you to lose over the long haul. This allows you to sleep at night no matter what happens. Trading can be fun - if you take away the stress. But you have to know how to go about determining what those safety features are. The calculator makes this task easy.
I put the FREE Fixed Fractional Futures Position Sizing Calculator – on my web site – to the test. I took the TRENDWAY DAY TRADING SYSTEM and applied the required information as asked for by the calculator.
If your aim in trading is to reduce your risk so that you can lose up to 12 trades in a row before losing 50% of your starting equity, then this is the path you should be following. It’s really hard to lose 12 in a row. Have never reached that low in any of my trading systems in the last ten years.
I set the following parameters:
1. Starting equity of $10,000
2. % risk to equity = 4%. In other words, your max loss is $400 per trade.
3. Your stop loss = 4 points per contract.
4. The Trendway D.T.S trades the emini s&p.
The first trade was 12/12/08 and the last traded was 7/10/09. Almost 7 months.
With these safety factors in place, the net results – after allowing $15 per contract for commission and slippage, was $46,848.00. That’s over $6,500 per month profit. And by using a maximum of only 4% loss per trade, you can sleep easily and know you will be around for a long time.
The spreadsheet automatically determines the number of contracts per trade as determined by your inputted figures. It is based on the net profit of each trade (including your starting equity). As there are two target exits per trade, the spreadsheet, in case the determination of the number of trades is odd (3, 5, 7 etc), determines that the first trade defaults the extra contract. If the # of contracts is determined to be 3, then the first target exit is 2 and the 2nd exit is 1. If it’s 5, then the 1st trade is 3 and the 2nd trade is 2. If it’s 1, then only the 1st trade is traded. Otherwise, it is a 50-50 split.
The calculator is on the 1st page of this web site. It is FREE—you just have to email me @ www.sp-bankbook@shaw,.ca to receive it. As the calculator is built into the spreadsheet, everything is at your fingertips.
If you decide to purchase the most recent Day-Trading System, you will get:
1. Trading manual explaining all rules governing the daily trading. Nothing is left out. There are a number of illustrative charts.
2. MS Excel spreadsheet ,with the Fixed Fractional Futures Position Sizing Calculator built in, and which does all the work for you.
3. Procedural manual explaining what to put where in the spreadsheet.
YOU GET A LOT FOR $398.00 USD.