Position Sizing in trends

Trading Discussion Risk Management Practices
1

Hi there

I have a question regarding position sizing during different market regimes:

In trending markets should I:

  • Trade larger because the payoff is higher?
  • Pyramid by adding to my winner at new highs (same position size added at each level)
  • Pyramid by adding to my winner at retracements, whilst taking some profits at perceived highs which reverse to retracements (same position size added at each level)
  • one position at normal size and I just run it till my system tells me to get out
2

Hi -

You might have read this before, but I’m happy to throw these points in as you’re enquiring into trend-following.

I don’t like to increase or decrease position sizes, my capital risk per trade is always the same, i.e. the maximum percentage of the account that I can stand. I don’t decrease initial position size either as I figure if it was such a low probability trade I shouldn’t have been taking it in the first place.

When the trade is opened in an ongoing trend, I set a pyramid order immediately the same number of pips ahead. When Trade 2 is triggered, it has the same pips to SL as Trade 1 had, and now I move Trade 1’s SL to Trade 2’s entry price, so capital risk remains the same. I also set a new entry order for Trade 3 the same number of pips ahead. I keep doing this whenever a new trade order is triggered.

This is great when the trend continues, which is something that cannot be readily calculated when you take the first trade. The majority of these series will end at a loss, a small gain or just break-even but a minority will make fantastic r:r as those trends continue.

3 Likes
4

Thanks Tommor, this is great advice.

The market distributes profits in fat tails, so a few trades make a large return. Which is what you pointed out there with your answer on how a few of them really become great trades.

I think I wasn’t considering the reality that the majority of these trades you’ll just be treading water or taking a loss.
So going bigger isn’t really the answer.

Thanks