To the C2 community:
Take a look at the system SPX Edge. The fact that the vendor provided Out-of-Sample, Forward Tested results for ten years and that he is giving a presentation at MIT warrants attention in my humble opinion. The 30 day free trial period is also a good sign.
As always, do your own research, I have no monetary or other interest in promoting this system. Below is the email response the vendor sent me to one of my inquiries:
Hi Karl,
You asked some very good questions.
The system increases position size based on risk and not based on account equity.
Average True Range (ATR) is the measure of risk used. I use an Average True Length (ATR) with a length of 5 days/bars and a multiple of 1. I subtract the ATR value from the entrance price to determine the dollar loss per contract if stopped out (stop loss Price). Then based on the dollar loss per contract, I figure out how many contracts to buy/short based on percentage of the account I am willing to risk.
For the C2 community, I set Percentage of account to risk at 5.75% per trade. I chose this level to maximize profit and to avoid C2’s high trade risk scoring. (This level can be adjusted to your risk tolerance)
The equation for determining the number of contracts is:
Position Size = (Account Equity * % Account risk per trade) / Dollar Risk per contract
Below is an example using a $20,000 account and a % account risk per trade set to 5.75%:
Purchase Price: 1750.00
5 Day ATR (multiple of 1): 15.00
Stop Loss Price: 1735.00 (1750.00 - 15.00)
Risk per contract: $750.00 (15 * $50)
Position Size = (Account Equity * % Account risk per trade) / Dollar Risk per contract
Position Size = ($20,000 * 5.75%) / $750.00
Position Size = ($1,150) / $750
Position Size = 1.53
Position Size = 1 (need to round down)
If my account was $30,000 then:
Position Size = (Account Equity * % Account risk per trade) / Dollar Risk per contract
Position Size = ($30,000 * 5.75%) / $750.00
Position Size = ($1,725) / $750
Position Size = 2.3
Position Size = 2 (need to round down)
To summarize, the position size is going to depend on volatility of the market, account size, and how much of the account we are willing to risk per trade. The higher the volatility, the fewer contracts we trade. If we are in a drawdown, we trade fewer contracts. The smaller the account size, the fewer contracts we trade. The number Contracts we trade are based on the percent account risk level per trade we are willing to risk.
Side Note: This system can be traded with a wider stop level. Widening the stop level will increase the Percentage of winning trades, but we will be trading fewer contracts.
After my presentation in Boston, I am thinking of putting together a YouTube video of a condensed version of the presentation. I think this will help everyone understand how to position their systems. I am hoping to get the video out a few weeks after the presentation.
Yes, I trade my own system. I use TradeStation as my broker.
I hope I answered your question about the position size. If not, let me know.
Happy Trading
Mark Awad
