Ok, so lets take an example of a successful system. I will use the James16 thread to illustrate (as it is the most widely followed). In this thread i noticed many users claiming success on the 5 min time frames (rightfully so) and many vets advising noobs to begin on the daily's first for various reasons (again, rightfully so). Now this left me thinking...
I use 1% on the daily's and weekly's, and 0.2% on the hourlies (the actual percent size does not matter, its the multiple that counts).
Now my usual stop on the hourly might be 35-40 pips and 150-200 pips on the daily. So my lot sizes might be similar, but percent risk is percent risk and same for gain, so unless i'm banking quick profits after BE (to the pt where its detrimental), my risk should be proportioned properly. Why?
a) Well because, I will have more time to properly line up my setup on a daily (PB, PPZ, fibs, TL, confluence), and the daily will give less false signals (my assumption) due to more info in one bar etc.
b) On the hourly's (the lowest i would go, probably taking an entry on the 15 min), I would have to rely on quicker analysis and hence be prone to certain mistakes, and instinct would play a part etc.
Why then trade the hourlies?
Trade frequency WILL define the returns of traders using similar systems.
Even though taking 2 or 3 daily setups will provide an adequate return on a large (this is so relative though) account, fact is, most traders would like to increase their frequency and thus, return on their 'small' accts right? I guess what it comes down to is this ...
If you have an edge on the hourlies and you can 'define' it? Do the inefficiencies that creep up in b) above, actually wipe out your edge? If not, then it does not make sense to pass up these trades.
But this is subjective, some people will argue that the market being fractal in nature, provide the same chances on every TF, some might argue to take 'only' the best setups on the hourlies and even 5 min. Some might say, that it's foolish to vary position sizes using a fixed fractional system unless dependency has been proven (which as we know, is awful Hard to prove with any reasonable level of 'confidence' {RUNS etc}), 'you might win the 0.2's and lose the 1's' etc etc.
What are your thoughts on varying position sizes according to time frames?
My final thought for now is, that since we do look for optimal allocations in an optimal portfolio for our systems (assuming we use more then one system, even if that's an interest bearing bank act), and in such a scenario there exists an optimal position size to 'put on'. Can we not break this down to apply to various time frames within each system? If the data below the dailies is reliable as a consequence of more 'noise', then we can dampen the effects by reducing variance (reducing position size) on lower time frames. Is this a sound approach?
I use 1% on the daily's and weekly's, and 0.2% on the hourlies (the actual percent size does not matter, its the multiple that counts).
Now my usual stop on the hourly might be 35-40 pips and 150-200 pips on the daily. So my lot sizes might be similar, but percent risk is percent risk and same for gain, so unless i'm banking quick profits after BE (to the pt where its detrimental), my risk should be proportioned properly. Why?
a) Well because, I will have more time to properly line up my setup on a daily (PB, PPZ, fibs, TL, confluence), and the daily will give less false signals (my assumption) due to more info in one bar etc.
b) On the hourly's (the lowest i would go, probably taking an entry on the 15 min), I would have to rely on quicker analysis and hence be prone to certain mistakes, and instinct would play a part etc.
Why then trade the hourlies?
Trade frequency WILL define the returns of traders using similar systems.
Even though taking 2 or 3 daily setups will provide an adequate return on a large (this is so relative though) account, fact is, most traders would like to increase their frequency and thus, return on their 'small' accts right? I guess what it comes down to is this ...
If you have an edge on the hourlies and you can 'define' it? Do the inefficiencies that creep up in b) above, actually wipe out your edge? If not, then it does not make sense to pass up these trades.
But this is subjective, some people will argue that the market being fractal in nature, provide the same chances on every TF, some might argue to take 'only' the best setups on the hourlies and even 5 min. Some might say, that it's foolish to vary position sizes using a fixed fractional system unless dependency has been proven (which as we know, is awful Hard to prove with any reasonable level of 'confidence' {RUNS etc}), 'you might win the 0.2's and lose the 1's' etc etc.
What are your thoughts on varying position sizes according to time frames?
My final thought for now is, that since we do look for optimal allocations in an optimal portfolio for our systems (assuming we use more then one system, even if that's an interest bearing bank act), and in such a scenario there exists an optimal position size to 'put on'. Can we not break this down to apply to various time frames within each system? If the data below the dailies is reliable as a consequence of more 'noise', then we can dampen the effects by reducing variance (reducing position size) on lower time frames. Is this a sound approach?