Variable Position Size

[ajellis]

Dr Van Tharp in his book "Trade Your Way To Financial Freedom" advocates the usage of a position sizing model based on constant dollar risk and variable position size.

So, if you define your risk as, for example, a stop distance below entry of 3 times the ATR, the dollar risk is known. If every dollar risk per trade is equal to, say, 2% of your account equity, this is used to determine your position size.

For example:
100,000 account equity
2% risk is 2,000
3ATR for a given stock bought at $3.00 is a stop at $2.75
Risk per share $0.25
Multiple of shares for $2000 risk = 2000/0.25 therefore 8,000 shares is the position size, or $24,000 at the purchase price of $3.00

If the risk of 3ATR came out at a stop of $0.50, then logically the position size would be halved to $12,000.

As far as I am aware, this is not yet possible with Tradesim, but according to tests done by Dr Van Tharp, this can make a massive improvement to the outcome of the same system, versus a constant position size model.

Is it possible to do this in Tradesim, and if not, could Tradesim future versions accommodate a variable position size with constant dollar risk?

[David Samborsky]

It's been available right from the start. :wink:

The two risk based position size models support this position size.

ie the Fixed dollar risk and Fixed percent risk PS model is what you are looking for.

It requires that you specify an InitialStop value in your trading rules and you should also enable the protective stop or use a trailing stop in order to contain the risk.

[ajellis]

Ah, well, I do feel a bit silly, but as they say, the only dumb question is the one you don't ask!

Thanks for letting me know, and so promptly too.