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Posts: 174

Joined: 1/13/2017

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Subject : RE: Fixed Trade Size vs % Of Equity
Posted : 9/1/2018 8:12 AM
Post #45313 - In reply to #45310

Good morning, Jim…

Before using anything to make choices, I want to know what it’s telling me.
In order to do that, I intentionally used the same setup for both runs and only changed the method of allocation (% of equity vs fixed $ amount). That allowed me to isolate and quantify the effect that one variable was having.

If it proved to be beneficial, then I’d go ahead and use it.

The comparison of the two made it apparent that using a fixed $ amount alters all of the pertinent statistics because the size of the trades relative to the account changes as the account equity changes (up or down).
It has nothing to do with ATM, other than the fact that it was my choice for doing the comparison. ATM is working correctly, as intended.

Let me limit this discussion to the run using a fixed $ amount and ignore the other;

It starts by using a fixed allocation of $10,000 (10% of the starting equity).
As the account grows, the trade size relative to the account equity decreases.
When the account reaches $200,000, each trade uses only 5% of the available equity.
At $1M, each trade uses only 1% of the available equity.
And at the end when the account is at $1.6M, each trade is only using .63% of the available equity.

As a result, all the statistics (MDD, Avg Inv, ROI, etc.) are lowered - but those stats will always be totally dependent on how the account grows (or falls).

It’s true that trading an account in an increasingly conservative manner like this might be exactly what someone wants to accomplish. If so, then this is the way to go.

Personally, I want to take advantage of the benefits of compounding - and this demonstrates that the correct allocation for me to use is % of equity, during testing and comparison of various strategies along with actual trading.

Hope that helps clarify what I was trying to demonstrate.

Happy Labor Day weekend,

[Edited by mholstius on 9/1/2018 8:14 AM]

Deleting message 45313 : RE: Fixed Trade Size vs % Of Equity

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