Building Algorithmic Trading Systems: A Trader's Journey From Data Mining to Monte Carlo Simulation to Live Trading, + Website

CHAPTER 20 Account and Position Sizing

Now that I’ve developed a strategy, watched it in real time for a while, and decided to trade it with my own money, then what? How do I determine how much to fund the account with? How do I position size? Do I start small or big? Do I have a position-sizing scheme? If things go bad, when do I quit trading the system?

At the end of the incubation period in mid-August 2013, I truly have no idea how this system will do over the next few months. My hope, as always, is that it will do great, but as with any strategy, I am always prepared to cut my losses and stop trading it if need be.

To avoid confusion later on, here is a summary of my strategies:

Two Trading Strategies in Euro Trading System:

• Strategy 1: Euro Night. Trades overnight session, has high winning percentage, lots of little wins, and an occasional big loser. Uses 105-minute bars.
• Strategy 2: Euro Day. Trades day session, lower win percentage, primary profit generator. Uses 60-minute bars.
  • Both strategies are independent, and I’ll be in only one at any given time.
  • Market: Euro Currency Futures (6E).

When to Quit

Now that I have decided to start trading my euro strategies live starting on Monday, August 20, 2013, I have to address the question that everyone likes to avoid when starting to trade a new strategy: if things go bad, when do I quit trading the strategy?

There are ...