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Systematic Trading: A unique new method for designing trading and investing systems by Robert Carver

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Chapter Ten. Position Sizing

Let’s come back to Sergei’s three questions from chapter seven. First, how much do you like this trade? This is the forecast for each instrument. Secondly, how much can you afford to lose? You should know how many chips of trading capital you’re willing to put down on the hypothetical casino baize depending on your desired target volatility.

So far, so good. But how many shares, bonds, spread bet points or futures contracts should you actually buy or sell? What does a combined forecast of -6 and a £1,000,000 annualised cash target volatility mean in practice if you’re trading crude oil futures in New York? To ...

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