Originally posted at forexfactory on July 13, 2010
Quote:Originally Posted byÂ petertraderDo you know which type of position sizing is the best, if i have system with high W% cca 90%, and RRR 3:1
i tried fixed fractional, martingale but i think they arenÂ´t very well, i want to find something better what suit me better, some suggestions?
thanks in advane ðŸ™‚
If you have a system that has 90% winrate with 3:1 RRR then a possibility is to trade the maximum possible leverage each and every trade while subtracting a little bit of leverage due to a few factors.
Lets say your stop loss is 50 pips and your broker has automatic margin call.
Your trading system(90% winrate, 3:1 RRR) fires off an entry signal on EUR/USD. Lets say your broker offers you 100:1 leverage. You have a $10,000 trading account. EUR/USD is trading at 1.2700 so your maximum buying power for EUR/USD is 10,000*100/1.27 = 787,401 or so, lets round down to 7 standard lots. This is 70$ per pip.
In the above scenario if you took the full loss your account would be down 70*50 = $3500. But your position will be forced liquidated before your trade got even got near your 50 pip stop loss.
You make your automatic margin call = 50 pip stop loss or as close as possible given the limitations of standard lot sizes.
If you do the math correctly assuming 100:1 leverage, 50 pip stop system, EUR/USD @ 1.27, $10,000 account your maximum trading size you could put on so the broker does not give you a margin call before your 50 pip stop is hit is approximately 500,000 unit size or 5 standard lots. This means around 25% risk per trade. 5 standard lots is $50 per pip, so assuming you take the full loss your down $2500, so your account is now at $7500. Buying Power for EUR/USD with $7500 is 7,500*100/1.27 is still 590,000 which is above the 5 standard lots position you put on so you would be safe. The real Leverage you would be using would be 50:1.
The above would of course be dependent upon the currency pair, if your broker only gives you 50:1 leverage instead of 100:1, stop size, among many other factors/variables to consider.
Let me end this post by saying that you need to be really , really , really sure that your system has a 90% win rate along with RRR of 3:1. If your trading a system based of trendlines and price action I honestly don’t think those systems come anywhere close to the numbers you described. Backtesting is not enough. You need to try the system out with some real money and low risk first to get some statistics first, then after many months of data you can decide whether to jack up the risk per trade.
But I cannot stress enough that a 90% winrate system with RRR of 3:1 is truly rare and extraordinary. You need to factor in what happens if you get unlucky and your first trade of your account is a loser or if the first two trades happen to be losers. I would suggest you think deeply about why your system is truly capable of those numbers and the many potential problems you would encounter with real account.
I would never advocate anyone risking 25% of their account on one trade unless they have tested the system live for many months with low risk first, truly understood with every fiber of their being what made their system so remarkable, unique and genius like, and had all of their emotional/psychological problems worked out.