hiphip-polla-banzai-vive-evviva

Monitorlist: USB30YUSD (Treasury Bond)

Monitorlist: NATGASUSD (Natural Gas)

Swinging Trade
AU200AUD, Long @ 5'961, Target @ 6'138

AUDCHF, Long @ 0.75309, Target @ 0.7720

Monitorlist: AUDNZD (Monthly, Weekly, Daily)

Monitorlist: CADHKD, (Monthly, Weekly, Daily)

NZDCAD, Short @ 0.95368, Target @ 0.92030

Sell Limit NZDCAD, Short @ 0.95, Target @ 0.8750

USDCHF, Long @ 0.95908, Target @ 1.0000

The market price could running down the EMA21/H1 with an H4 CCI(14) divergence, next 0.9602 (DPV)

PO USDCHF, Long @ 0.9355 (DS3), if so.

___
PO = Pending Order

EURUSD, Short @ 1.09831

Australia200, Long @ 5'9035, Target @ 5'990

PO Australia200, Long @ 5'848 (61.8%/Daily 2015 March 11), Target @ 6'140

http://www.vantharp.com/products/def...ion-sizing.asp

Van Tharp's
Definitive Guide to
Position Sizing Strategies

2nd Edition
How to Evaluate Your System and Use Position Sizing Strategies to Meet Your Objectives

Because...
Size DOES Matter in the Markets!

90% of Performance Variation Among Professional Traders
Is Due to Position Sizing Strategies.

Position Sizing is the Key to Meeting Your Trading Objectives.


http://www.vantharp.com/images/def-g...res-180-px.jpg

The "How Much" Factor
Your success as a trader has little to do with selecting the right investment or even having a great system. Instead, it has everything to do with the “how much” factor when you invest or trade.

Investment professionals have called this factor “asset allocation” or “money management.” However, they failed to understand that the key aspect was “how much” to invest in any position. Others work so hard to get themselves a good system, but fail to realize that position sizing strategies are the key to getting what they really want.

When you have a great trading system, it is certainly easier to meet your system objectives through your position sizing method; however, you still have a chance to meet your objectives and profit with an average system if you understand how to position size properly. Yes, your position sizing strategy is that important.

For many years Dr. Tharp has specialized in helping traders and investors understand position sizing strategies and how to use them effectively. He originally published The Money Management Report as his guide to position sizing methods. But thanks to an overwhelming demand from his clients, we’ve now published the book you’ve all been waiting for, Dr. Tharp’s Definitive Guide to Position Sizing.
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What You'll Learn
When Dr. Tharp’s clients reviewed this book for publication, many found it so valuable that they did not want to return it once they finished their review.

In the Definitive Guide to Position Sizing Strategies you’ll discover the following:

1. Psychological biases that discourage your use of position sizing strategies
2. How to understand low-risk ideas.
3. Systematic approaches to evaluate your system’s performance including a thorough explanation of Van’s System Quality Number rating process
4. Van’s method for defining the six market types and how you can determine in which markets your system will work best – or at all.
5. Some simple and some complex ways how to let your winners win big and cut your losses short.
6. How you use position sizing strategies to meet your objectives.
7. How to create effective and robust objectives for your trading.
8. Six realistic methods that you could use to limit your potential for ruin or to limit large drawdowns in your account.
9. 96 different position sizing models (actually, there’s well over 100 possible because several of the individual models encompass multiple variations!).
10. Your position sizing questions answered.

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What's New in the Second Edition
Before updating the book for the second edition, we polled readers of the first edition to find out what they liked and how they thought the book could be improved. While most readers ranked the 1st edition at 10 out of 10, we did get some valuable suggestions which we incorporated.

Here’s a list of the second edition improvements:

1. Edited the style to be a little less academic and easier to read.
2. Revised, expanded, and updated the market type classification section.
3. Replaced a number of the original graphs with new ones which are easier to interpret.
4. Added a number of new graphs to help visually oriented traders better see the data
5. Added additional examples and case studies to more clearly illustrate various concepts and models.
6. Added a new chapter on next steps to take so you can apply the ideas in the book more quickly.
7. Added several new position sizing models derived from the existing models and added two entirely new models, one provided by Ken Long and the other provided by one of Van’s Super Traders.
8. Removed two chapters that were less than essential to the central lessons (though they are still available for download).

Finally, for the second edition, some of the Excel files used in the book are available for download. Interested readers will have the ability to study some of the data from the book and experiment with it if they like.
Dr. Tharp's Perspective
http://www.vantharp.com/images/van-t...ding-coach.jpgTo succeed as a trader, you may think you need to understand how the markets really work, but you don’t. You only need to understand the concept that you are trading.

If you are a trend follower, you just need to understand that the markets will occasionally move in very large trends, and if you can catch the big moves, you’ll make a lot of money. If you are a value investor, you just need to understand why something is undervalued and be confident in your ability to determine that. The other two things you need to understand are (1) when your investments are no longer undervalued, meaning it’s probably time to sell, and (2) when you might be wrong about your evaluation so you can safely abort and preserve your capital.

Similarly, no matter how confident you are in your system, you will have trouble making market predictions. But you don’t have too!
Psychological research has shown that there is no correlation between the confidence people have in a future trade and the likelihood of it being a success. I think this is especially true for traders with no proven system. In fact, there is probably a slight negative correlation between confidence level and the likelihood of success. In other words, the more confident you are, the more likely it is that the trade might go poorly. What I have learned over the years is that people are just not good at predicting success.

If you still believe that you can predict some trades very accurately, then I recommend that you collect some data on these trades. When you think a trade has a very high probability of success, make a note of it in a journal. After you’ve collected at least 30 of these trades, review the results. What relationship is there between your confidence of success and the actual success of the trade?

What Is Trading All About Then?
Trading is about entering and exiting positions with the idea of meeting your financial objectives of 1) capital preservation and 2) an increase in equity. Therefore, one of the most important questions you can ask yourself are “What are my trading objectives?” and “How can I use my position sizing method to meet those objectives?”

As you’ll learn in the Definitive Guide to Position Sizing Strategies, there are probably an infinite number of possible objectives that you could have, given that there are a large number of different sized drawdowns you might want to prevent (e.g., 10% vs. 40%), and an even bigger number of gains you might aspire to make (e.g., 10% vs. 1,000,000%).

Once you determine your objectives, you can design a position sizing method to meet those objectives. How can you reach your financial goals if you haven’t spent the time determining what they are?

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Is Your System Any Good?
How do you know whether or not you have a good system? How can you determine how much better one system is over another? Is there any way to do this across system types and across markets?

Is a system that wins 70% of the time better than a system that wins 30% of the time? Not necessarily!

Is a system with an average return (expectancy) of 1.5R per trade better than one with an average return of 1.2R per trade? You’d probably think so, but that’s not necessarily true either.

Or what about a system that should make 27R over the next month versus a system that should make 35R—is the 35R system a better system? You’d probably think so, but sometimes the best system is the 27R system.

Why? The “best” system will make it easiest for you to meet your objectives through your position sizing method. And in this book, you’ll learn my approach for figuring out the best system with my System Quality Number concept. You’ll also learn how to optimize the probability of meeting your objectives through position sizing strategies. That, in a nutshell, is the real significance of this book.
.

In my opinion, position sizing strategies are the most significant part of any trading system.
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How Much Risk Should You Take?
Isn’t it interesting that most professionals cannot even agree on the terms, let alone the definition of what is probably the most important topic for all traders and investors to understand? Some people have referred to the topic as asset allocation and others have used money management. I started using the term position sizing about three books back. Your Position sizing strategy is the difference between poor performance and great performance—the difference between going broke and being a successful professional.

Let me define position sizing strategies right now. Please take note.
Position sizing strategies are that portion of your trading system that tells you “how many” or “how much.” How many units of your investment should you put on at a given time? How much equity should you be willing to risk (lose)?
Aside from your personal psychological issues, this is the most critical concept you need to tackle as a trader or investor. When you started trading or investing, you had probably never heard about position sizing. If you knew something about it, your knowledge probably came from some book by an author who probably didn’t understand it either. Most books that discuss position sizing strategies are about diversification or about optimizing the gain from your trading. Books on systems development or technical analysis don’t even begin to discuss position sizing adequately. As a result, most traders and investors have no place to go to learn what is probably the most important aspect of their craft.

In the Definitive Guide book, I present many position sizing methods that you might want to use in your trading. Your choice of methods, of course, will depend upon your specific objectives, your trading system’s performance, and your comfort level with the various methods described. Your trading success still depends upon having a well thought out business plan, developing systems that you feel confident trading, and using a position sizing algorithm that you feel confident will help you meet your objectives.

Understanding Low-Risk Ideas
A low-risk idea is an idea that has a long-term positive expectancy traded at a risk level to allow for the worst possible occurrence in the short term so that you are able to realize the positive expectancy in the long term.

If you have faith in the long-term expectancy of your system and just follow the process, then everything will work out. But notice how the idea of a position sizing method is critical to a low-risk idea. If your position sizing strategy risks too much for your R multiple distribution profile, you are guaranteed to eventually lose your funds.

Let me state that another way. If you risk too much money on one trade, you risk depleting your funds so much that you can no longer trade effectively. And if you trade with too little capital, almost any trade you make will risk “too much.”

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What Works (or Doesn't Work)
To make this book a true "definitive guide" to position sizing strategies, I’ve attempted to cover every method I’ve ever seen, even ones I don’t like.

You will learn 32 different models and 3 different equity calculations so in this book alone you have 96 different position sizing models (i.e., 32 times 3) that you can use. (Actually, several of the models have more than one variation so you easily have over 100 position sizing options.) It’s important to note that psychological biases have prompted people to invent models that don't work and shouldn't’t be used. To help you steer clear of the same mistakes, I devoted an entire chapter to methods to avoid.

Furthermore, many of the methods presented have multiple derivative models. For example, you could probably come up with thousands of varieties of market’s money alone. In fact, knowledgeable traders could probably spend much more time crafting effective position sizing strategies as average traders spend on entries.

The Definitive Guide to Position Sizing Strategies is one of the most valuable, if not the most valuable, tool to add to your trading system. When you consider the value of the knowledge in this book and its potential ROI, the cost is quite reasonable.

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The Next Step
My recommendation to you is that you determine your objectives for your trading.

• What are you trying to accomplish in regards to capital preservation and growth of your money?
• What are you endeavoring to achieve financially?
• Ask yourself “Who am I?” and “What are my financial goals?”

I cannot overemphasize the importance of this step.

Next, follow the guidelines in this book for using one of the methods to meet these objectives. Work with the methods you are attracted to until you thoroughly understand them and feel comfortable with them. Understand how the method works and develop confidence using it before you start trading with it.

When you know your R-multiple distribution, your system’s expectancy, and your System Quality Number (SQN) score, you no longer have to do the impossible and try to predict the market. You will use position sizing strategies to let your profits run and cut your losses short. You will know what to expect from your system in the long run. And as long as you position size to avoid any worst-case disasters, you should be able to achieve that expectancy.

Are you beginning to see how trying to predict the markets and thinking you need to pick the perfect stock can steer you away from what works? When a pollster predicts how the American population will vote, he doesn’t necessarily know or understand why. He just knows what the likely outcome of the vote will be given the probabilities. After you read this book you will have enough information to understand your objectives, your system’s performance, and which position sizing strategies will help you meet your objectives. That’s all you'll need.

In over 400 pages, I cover the hundreds and hundreds of questions and situations that I’ve encountered as I have taught this concept to trader after trader during the past 20 years. This definitive guide is truly my ultimate knowledge on position sizing strategies. And based on what numerous clients have told me year after year after looking far and wide, they consider me the foremost expert on the subject.
— Van K. Tharp
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Table of Contents - Overview
• The Golden Rules of Trading
• Risk and R-Multiples
• Evaluating the Quality of Your Trading System
• What Can I Expect in the Future?
• The Most Important Factor (besides you) in Your Trading
• CPR for Traders and Investors
• Core Position Sizing Models
• More Position Sizing Models
• Comparing the Impact of Various Models
• Meeting Your Objectives
• Position Sizing Methods to Meet Your Target Profit Objective
• Using Fixed Ratio Position Sizing to Meet Your Profit Target
• Position Sizing Methods to Help You Avoid Ruin
• Position Sizing Strategies to Avoid!
• Putting it All Together: An Interview With Chris Anderson
• How to Proceed
• Questions and Answers
To see an extended table of contents, click here.

http://stansberryresearch.com/invest...sition-sizing/

Position Sizing
An Interview with Brian Hunt
The following interview is one you'll want to print out and read again and again until it becomes second nature.

It's one of the most important ideas any investor can learn. It's an essential element of success for everyone, from the conservative novice investing for retirement to the professional short-term trader. Ignoring this idea is responsible for more losses than any other investment mistake.

To explain this idea, we welcome Brian Hunt. Brian is a successful private investor and trader, and the Editor in Chief of Stansberry Research, one of the country's largest independent financial publishing firms.

If you're looking to take your investing or trading to the next level, you must master this idea.

http://files.stansberryresearch.com/...I7QAVH13TH.jpg

Stansberry Research: Brian, one of the most important things any new investor can learn is correct position sizing. Can you define the idea for us?

Brian Hunt: Sure... Position sizing is an incredibly important part of your investment or trading strategy. If you don't know the basics of this concept, it's unlikely you'll ever succeed in the market. Fortunately, it's an easy concept to grasp.

Position sizing is the part of your investment or trading strategy that tells you how much money to place into a given trade.

For example, suppose an investor has a $100,000 account. If this investor buys $1,000 worth of shares in company ABC, his position size would be 1% of his total capital. If the investor bought $3,000 worth of stock, his position size is 3% of his total capital.

Many folks think of position size in terms of how many shares they own of a particular stock. But the successful investor thinks in terms of what percentage of their total account is in a particular stock.

Stansberry Research: Why is position sizing so important?

Hunt: Position sizing is the first and probably most important way investors can protect themselves from what's known as the "catastrophic loss."

The catastrophic loss is the kind of loss that erases a large chunk of your investment account. It's the kind of loss that ends careers... and even marriages.

The catastrophic loss typically occurs when a trader or investor takes a much larger position size than he should. He'll find a stock, commodity, or option trade he's really excited about, start dreaming of all the profits he could make, and then make a huge bet.

He'll place 20%, 30%, 40% or more of his account in that one idea. He'll "swing for the fences" and buy 2,000 shares of a stock instead of a more sensible 300 shares. He'll buy 20 option contracts when he should buy three.

The obvious damage from the catastrophic loss is financial. Maybe that investor who starts with $100,000 suffers a catastrophic 80% loss and is left with $20,000. It takes most folks years to make back that kind of money from their job.

But the less obvious damage is worse than losing money... It's the mental trauma that many people never recover from. They can get knocked out of investing forever. They just stick their money in the bank and stop trying. They consider themselves failures. They see years of hard work – as represented by the money they accumulated from their job or business – flushed down the toilet. It's a tough "life pill" to swallow. Their confidence gets shattered.

So clearly, you want to avoid the catastrophic loss at all costs... And your first line of defense is to size your positions correctly.

Stansberry Research: What are the guidelines for choosing a position size?

Hunt: Most great investors will tell you to never put more than 4% or 5% of your account into any one position. Some professionals won't put more than 3% in one position. One percent, which is a much lower risk per position, is better for most folks.

Seasoned investors may vary position size depending on the particular investment. For example, when buying a safe, cheap dividend stock, a position size of up to 5% may be suitable. Some managers who have done a ton of homework on an idea and believe the risk of a significant drop is nearly non-existent will even go as high as 10% or 20% – but that's more risk than the average investor should take on.

When dealing with more volatile vehicles – like speculating on junior resource stocks or trading options – position sizes should be much smaller... like a half a percent... or 1%.

Unfortunately, most novices will risk three, five, or 10 times as much as they should. It's a recipe for disaster if the company or commodity they own suffers a big, unforeseen move... or when the market in general suffers a big unforeseen move. These big, unforeseen moves happen with much greater frequency than most folks realize.

Stansberry Research: Can you explain how the math works with position sizing?

Hunt: Yes... But first I need to explain a concept that goes hand in hand with determining correct position sizing: protective stop losses.

A protective stop loss is a predetermined price at which you will exit a position if it moves against you. It's your "uncle" point where you say, "Well, I'm wrong about this one, time to cut my losses and move on."

Most people use stop losses that are a certain percentage of their purchase price. For example, if a trader purchases a stock at $10 per share, he could consider using a 10% stop loss. If the stock goes against him, he would exit the position at $9 per share... or 10% lower than his purchase price.

If that same trader uses a stop loss of 25%, he would sell his position if it declined to $7.50 per share, which is 25% less than $10.

Generally speaking, a stop loss of 5% is considered a "tight stop"– that is close to your purchase price – and a 50% stop loss is considered a "wide stop" – that is a long way from your purchase price.

Combining intelligent position sizing with stop losses will ensure the trader or investor a lifetime of success. To do this, you need to understand the concept many people call "R."

Stansberry Research: Please explain...

Hunt: "R" is the value you will "risk" on any one given investment. It is the foundation of all your position-sizing strategies.

For example, let's return to the example of the investor with a $100,000 account. We'll call him Joe.

Joe believes company ABC is a great investment, and decides to buy it at $20 per share.

But how many shares should he buy? If he buys too many, he could suffer a catastrophic loss if an accounting scandal strikes the company. If he buys too little, he's not capitalizing on his great idea.

Here's where intelligent position sizing comes into play. Here's where the investor must calculate his R.

R is calculated from two other numbers. One is total account size. In this case, it's $100,000. The other number is the percentage of the total account you'll risk on any given position.

Let's say Joe decides to risk 1% of his $100,000 account on the position. In this case his R is $1,000. If he decided to dial-up his risk to 2% of his entire account, his R would be $2,000. If he was a novice or extremely conservative, he might go with 0.5%, or an R of $500.

Joe is going to place a 25% protective stop loss on his ABC position. With these two pieces of information, he can now work backwards and determine how many shares he should buy.

Remember... Joe's R is $1,000, and he's using a 25% stop loss.

To calculate how large the position will be, the first step is to always divide 100 by his stop loss.

In Joe's case, 100 divided by 25 results in four. Now, he performs the next step in figuring his position size. He then takes that number – four – and multiplies it by his R of $1,000.

Four times $1,000 is $4,000, which means Joe can buy $4,000 worth of ABC stock... or 200 shares at $20 per share.

If ABC declines 25%, he'll lose $1,000 – 25% of his $4,000 – and exit the position.

That's it. That's all it takes to practice intelligent position sizing.

Here's the calculation again:

• 100 divided by your stop loss equals "A."
• "A" multiplied by "R" equals position size.
• Finally, position size divided by share price equals the number of shares to buy.

Now... what if Joe wants to use a tighter stop loss – say 10% – on his ABC position? Let's do the math...

• 100 divided by 10 equals 10.
• 10 multiplied by $1,000 equals $10,000.
• $10,000 divided by the same $20 share price equals 500 shares.

So you can see that using a tighter stop loss with the same R allows Joe to buy a larger number of shares, while risking the same amount of his total account... $1,000.

Next, let's say Joe wants to use a super-tight stop loss of just 5% on his position. In this case, if ABC declines just 5% to $19 per share, he's out of the trade.

This tighter stop loss means he can buy even more shares. Let's do the math again...

• 100 divided by 5 equals 20.
• 20 multiplied by $1000 equals $20,000.
• $20,000 divided by the $20 share price equals 1,000 shares.

Again, a tighter stop loss with the same R of $1,000 means he can buy twice as many shares and still risk the same amount of his total account.

As you can see, you can use the concepts of position sizing and stop losses to determine how much of any asset to buy... from crude oil futures to currencies to microcaps to Microsoft.

If you're trading a riskier, more volatile asset, the stop-loss percentage should typically increase and the position size should decrease.

If you're investing in a safer, less volatile asset, the stop-loss percentage should decrease and the position size should increase.

And like I mentioned earlier, a good, "middle of the road" R that will work for anyone is 1% of your total account. Folks new to the trading game would be smart to start with half of one percent of their account. This way, you can be wrong 10 times in a row and lose just 5% of your account.

Stansberry Research: Any closing thoughts?

Hunt: Again, the biggest thing intelligent position sizing does is keep you from suffering the catastrophic loss. The golden rule of investing or trading is, "Don't lose money." Intelligent position sizing ensures you always follow rule number one.

Stansberry Research: Thanks for talking with us.

Hunt: My pleasure.

Summary: Position sizing is your first line of defense against catastrophic loss. Combining intelligent position sizing with protective stop losses will ensure the trader or investor a lifetime of success.

Australia200, Long @ 5'895, Target @ 5'995

http://turtletrader.com/position_sizing.pdf

UPPSALA UNIVERSITY
Department of Psychology
Master thesis, 20 p
Position-sizing Effects on Trader Performance:
An experimental analysis

http://www.mta.org/eweb/docs/pdfs/go...ott-101310.pdf

Money Management Strategies
Gordon Scott, CMT

Australia200, Long @ 5'897, Target @ 6'080
The market price has touched the EMA21/Daily
I expec a bigger upward trend (weekly & monthly chart).
FXcube

http://www.priceactionlab.com/Litera.../position.html

Fixed Fractional Position Sizing

Michael Harris

www.priceactionlab.com

Many experienced traders use the risk percent method, also known as fixed fractional method, for calculating position size. This is a practical method with no rigorous theoretical justification for its use other than the fact that it has worked well for many successful traders in the past and it is highly recommended in the literature.
Many experienced traders risk no more than 1 to 2 percent of available account equity (current bankroll) on each trade. This range of risk percent values appears to offer a good trade-off between risk and reward while keeping the probability of ruin low.
Application of the risk percent method for calculating position size requires that before a trade is opened, the exit price level is know quite accurately. Obviously, this method cannot apply to trading strategies with varying, or unknown in advance, exit price levels. This is a drawback of the method but it may also be an indication that effective risk management can only be accomplished with simple position exit strategies.
The formula for the risk percent position-sizing method is obtained after one realizes that the amount risked on each trade must be equal to the fraction of the current bankroll one is willing to lose. The amount risked on each trade is equal to the difference between the entry and exit price, times the number of contracts or shares. The fraction of the current bankroll one is willing to lose on each trade is found by multiplying it by the allowable risk percent. Then, the account equity M is equal to:
http://www.priceactionlab.com/Positi...g_image001.gif (1)
where R is the percent risk, Pi is the entry price, Po is the exit price, and N is the number of shares or contracts.
The absolute value of the difference between the entry price and the exit price is taken in equation 1 to account for both long and short positions.

Point stops
If the stop-loss is a fixed number of points, then
http://www.priceactionlab.com/Positi...g_image002.gif (2)
which means that the exit price is equal to the entry price, plus or minus the stop-loss Si in points, depending on whether the trade is long or short.
After combining equations 1 and 2 we obtain
http://www.priceactionlab.com/Positi...g_image003.gif (3)
The absolute value operator is no longer required in equation 3 since Si is by definition a positive number. After solving equation 3 for the number of shares N, we obtain the following equation:
http://www.priceactionlab.com/Positi...g_image004.gif (4)
Thus, we have derived the risk percent position-sizing formula in the case that the stop-loss is defined in points.
Examples:
(a) Stock trading:
Account equity: $100,000
Risk percent: 2%
Stop-loss: 4 points
Position size (equation 4) N = (100,000 x 2/100) / 4 = 500 shares
(b) Futures trading (T-Bonds)
Account equity: $200,000
Risk percent: 2%
Stop-loss: 2 points equivalent to 2 points x $1,000/point = $2,000
Position size (equation 4) N = (200,000 x 2/100) / (2 x 1,000) = 2 contracts
In general, the value to use in the denominator of equation 4 for Si is equal to the number of points used for stop-loss times the full point value.

Percent stops
Next, we consider the case of a stop-loss percent as follows:
http://www.priceactionlab.com/Positi...g_image005.gif (5)
In this case, the exit price is equal to the entry price, plus or minus a fraction Sp of the entry price, depending on whether the trade is long or short. After combining equations 1 and 5 we obtain
http://www.priceactionlab.com/Positi...g_image006.gif (6)
and we can now solve for the number of shares N to get the final formula:
http://www.priceactionlab.com/Positi...g_image007.gif (7)
In this case, the position size depends on the entry price Pi. The price to open a position is not always known, because that depends on the order type. If unknown, an approximate entry price can be used without impacting the calculation greatly. For instance, many trading systems generate entry signals on the open of the next day and the orders are entered as MOO (market on open). In that case, the opening price is not known in advance but the last closing price can be used without a significant impact on the calculated number of shares N.
Example:
Account equity: $100,000
Risk percent: 1%
Stop-loss percent: 5%
Entry price: $20.00
Position size (equation 5) N = (100,000 x 1/100) / (20.00 x 5/100) = 1000 shares
The number of shares calculated using the formulas derived should always be checked against the maximum number of shares allowed based on available capital and the minimum of the two numbers should be used. The maximum number of shares allowed is simply equal to the available capital divided by the entry price in the case of equities. In the case of futures and forex the maximum number of contracts allowed equals the available capital divided by the margin requirement per contract bought long or sold short.

Simple but effective
The risk percent position method is simple but very effective. It is evident from equations 4 and 7 that as the account equity M increases due to accumulated trading profits, the position size N also increases proportionally. The reverse happens when the account equity decreases. Thus, this method, even though it is fundamentally simple, is nevertheless dynamic in nature. It is also classified as an anti-Martingale betting strategy, as opposed to a Martingale one.
Martingale betting strategies increase the bet size if the account equity drops, in an attempt to recover losses and even make a profit, provided of course there is a strategy with a winning bias. Similarly, the bet size is decreased when the equity increases, for the purpose of limiting risk exposure and securing realized profits. This type of betting strategy can be used for position sizing but many experienced traders do not recommend it. The reason that Martingale betting systems can fail and lead to disaster is that in the presence of a very long streak of losers, such methods guarantee in theory an eventual win if, and only if, the available equity is infinite. In reality, however, accounts have a finite size, and there are always a number of consecutive losers that, when combined with a Martingale betting method, can result in total ruin.
In contrast, anti-Martingale betting strategies increase the bet size while net equity increases and decrease it the other way. The risk percent position-sizing method and the optimal method based on the Kelly formula can be classified as anti-Martingale betting systems. This type of betting system promises higher returns in exchange for a more volatile equity curve as compared to, for example, the equity curve that is obtained when using the starting trading account value instead with a fixed number of shares or contracts.

http://www.diva-portal.org/smash/get...FULLTEXT01.pdf

Position sizing methods for a
trend following CTA
HENRIK SANDBERG
RASMUS HMAN