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Position Sizing: The Key to Consistent Trading Success

Introduction

Position sizing, a crucial aspect of trading strategy, is often overlooked by novice and experienced traders alike. It is the process of determining the number of shares or contracts to trade, taking into account your account size, risk tolerance, and trade setup. In this article, we delve into the importance of position sizing and explore insights from Dr. Glen Brown, a renowned expert in trading psychology and risk management.

The Importance of Position Sizing

  1. Risk management: “Position sizing is the cornerstone of successful risk management,” says Dr. Glen Brown. By controlling the size of your trades, you can manage potential losses and prevent devastating drawdowns in your trading account. By employing proper position sizing techniques, you can preserve your trading capital and stay in the game longer.
  2. Consistency: Dr. Brown emphasizes the importance of consistency in trading, stating, “Consistent position sizing is essential for consistent results.” This is particularly true for traders who follow a systematic approach. By maintaining a consistent position size, you can better evaluate your trading system’s performance and make necessary adjustments.
  3. Emotional stability: Trading can be an emotional rollercoaster, and proper position sizing helps to maintain emotional equilibrium. “When traders use appropriate position sizing, they’re less likely to experience emotional extremes,” explains Dr. Brown. By keeping your trade sizes in check, you can avoid the emotional pitfalls of overconfidence or fear, which can negatively impact your decision-making.
  4. Longevity: Position sizing contributes to trading longevity by reducing the likelihood of significant losses that can lead to account depletion. Dr. Brown cautions, “Ignoring position sizing increases the chances of encountering the dreaded ‘death spiral,’ where one large loss leads to a series of even larger losses, eventually wiping out a trading account.”

Position Sizing Techniques

  1. Fixed dollar amount: Dr. Brown suggests that one way to approach position sizing is to set a fixed dollar amount per trade. This approach is simple and easy to implement, but may not be the most suitable for all traders, as it doesn’t consider the specific risks associated with each trade.
  2. Percent of account: Another method is to risk a fixed percentage of your trading account on each trade. Dr. Brown states, “This method ensures that as your account grows, so does your position size, while a decrease in your account size will lead to smaller position sizes, keeping risk in check.”
  3. Volatility-based sizing: This technique involves adjusting position size based on the volatility of the asset being traded. Dr. Brown notes, “By factoring in volatility, traders can better account for the inherent risks associated with each trade.”

Conclusion

Position sizing is a critical aspect of trading success that should not be underestimated. As Dr. Glen Brown emphasizes, it helps traders manage risk, achieve consistency, maintain emotional stability, and promote longevity in the markets. By employing a suitable position sizing technique, you can better safeguard your trading capital and enhance your chances of long-term success.

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Global Hybrid Forex Trading Strategy(GHFTS)

Global Hybrid Forex Trading Strategy(GHFTS) executed on the Global Algorithmic Trading Software(GATS)-System#0-#6

The Global Hybrid Forex Trading Strategy(GHFTS) is a trend following strategy that was developed by Dr. Glen Brown. The strategy is executed on the Global Algorithmic Trading Software(GATS) using its seven(7) sub-systems from the Based system to system #6.

Global Hybrid Forex Trading Strategy trade in the direction of the Micro, Short, Medium, and Long Term trends using Global Algorithmic Trading Systems(GATS)#0, #1, #2, #3, #4, #5, and #6.

This account is for research purposes and hence should not be deemed as investment advice.

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Global Algorithmic Trading is a method of executing orders using automated pre-programmed trading instructions accounting for variables such as time, price, and volume. This type of trading attempts to leverage the speed and computational resources of computers relative to human traders.

Global Algorithmic Trading Software(GATS)-System #0 to System #6 uses computer codes and chart analysis to enter and exit trades according to to set parameters such as price movements or volatility levels. Once the current market conditions match any predetermined criteria within the software, the trading algorithms will execute a buy or sell order on our behalf.

Global Algorithmic Trading Software(GATS)-System #0 to System #6 runs on MetaTrader 4, the most popular trading platform in the world. MetaTrader 4 is an advanced trading platform that gives you access to a range of tools and features to help you carry out analysis and customize your trading experience.

Main Features of the Global Algorithmic Trading Software(GATS)

**Global Algorithmic Trading Software(GATS)-System #0 to #6 is used to execute our trading decisions in over 60 countries worldwide
**Global Algorithmic Trading Software(GATS)-Systems #0 to #6 can be used for Equities, Futures, Commodities, Options, Bonds, Currencies, and mutual funds
**Volatility Based Risk Management System
**Volatility-Based Position Sizing Management System

In this research, we will combine all seven(7) subsystems and apply the strategy to 8 major forex currency pairs. Majors are generally the most popular type of currency pair to trade.

The most traded forex pairs at Global Financial Engineering and Global Accountancy Institute.

*EUR/USD (euro/US dollar)
*GBP/USD (British pound/US dollar)
*USD/JPY (US dollar/Japanese yen)
*USD/CHF (US dollar/Swiss franc)
*USD/CAD (US dollar/Canadian dollar)
*AUD/USD (Australian dollar/US dollar)
*NZD/USD (New Zealand Dollar/US dollar)
*EUR/JPY (Euro/Japanese yen)

Let us track our trades for the Global Hybrid Forex Trading Strategy(GHFTS) and analyze them in order to create a successful transition and operational excellence using the above currency pairs.

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Let us analyze our current open trades:


As at December 5, 2022, We have decided to use a Hard Stop Loss and an initial trailing stop given by one times the twelve monthly average true range(ATR12) with a 0.07 % risk per trade per subsystem. We will also activate a normal trailing stop given by 10% of the initial risk. Our profit target is three times the initial risk

Trading Risk Disclaimer

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

Futures trading involves the potential for a substantial risk of loss as well as substantial gains and is not suitable for every investor. The highly leveraged nature of futures trading means that small market movements will have a great impact on your trading account and this can work against you, leading to large losses, or can work for you, leading to large gains. If the market moves against you, you may sustain a total loss greater than the amount you deposited into your account.

You are responsible for all the risks and financial resources you use and for the chosen trading system. You should not engage in trading unless you fully understand the nature of the transactions you are entering into and the extent of your exposure to loss. If you do not fully understand these risks you must seek independent advice from your financial advisor. All trading strategies are used at your own risk. It is your responsibility to confirm and decide which trades to make. Trade only with risk capital; that is, trade with money that, if lost, will not adversely impact your lifestyle and your ability to meet your financial obligations.

U.S. Government Required Disclaimer – Commodity Futures Trading Commission. Futures and options trading has large potential rewards, but also large potential risks. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with money you can’t afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or methodology is not necessarily indicative of future results.

CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN

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