# Fixed Fractional Positioning



## CanOz (27 January 2009)

Here is a good explanation of FFR aka Fixed Risk Positioning. This is a method to help calculate how many stocks, or other instruments to buy or sell and maintain your desired level of risk per trade.

http://www.stator-afm.com/fixed-fractional-position-sizing.html

CanOz


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## Boggo (27 January 2009)

CanOz said:


> Here is a good explanation of FFR aka Fixed Risk Positioning. This is a method to help calculate how many stocks, or other instruments to buy or sell and maintain your desired level of risk per trade.
> CanOz




CanOz

I have attached a couple of pics of the principle.

Risk is 2% (inc brokerage) of 20000, same assumed target of $4.75, same entry (buy price) but a different exit (stop).
The result is a different Risk/Reward and a different buy volume.

With the stop at $2.20 the R/R is only 2.5 (lower than I like to have) whereas stop at $2.49 R/R is very good... but, the risk of being stopped out is greater.

Just for fun which stop would you use ??

(click to enlarge)


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## glenn_r (27 January 2009)

Right now I would set it @ 2.61, but I would wait to enter after it breaks through 3.00 level then reassess the stop level then maybe using the trend line or recent swing low.


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## Cartman (27 January 2009)

Boggo said:


> Just for fun which stop would you use ??
> 
> (click to enlarge)




stop at 2.35 would be my choice  -----  but totally subjective ---- 

with a 2 stage entry !! (initial half position size )


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## CanOz (27 January 2009)

Why not under the third bar back and really go for it!

I like the closes. 

Cheers,


CanOz


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## Boggo (27 January 2009)

glenn_r said:


> Right now I would set it @ 2.61, but I would wait to enter after it breaks through 3.00 level then reassess the stop level then maybe using the trend line or recent swing low.




I wouldn't wait until $3 glenn, I would be in at a break of 2.91 with a stop at 2.49, my 




Cartman said:


> stop at 2.35 would be my choice  -----  but totally subjective ----
> 
> with a 2 stage entry !! (initial half position size )




That is nearly 20% from entry to stop, too far for my liking Cartman.




CanOz said:


> Why not under the third bar back and really go for it!
> 
> I like the closes.
> 
> ...




I use 2.1 times ATR as a bit of a guide to give it some room to move around, 2.1 ATR is about 2.52 at the moment so my stop at 2.49 is just outside that.

It is holding up well even on down days.

Its always interesting how we all vary in these scenarios.

Cheers.


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## weird (27 January 2009)

I would pick closer to Glenn's and CanOz's stops @ 2.62, and I would look at 2.92 for entry (same as your pick Boggo).  

If you are wrong about the trade, how long are you willing to be wrong, using a wide stop ... over 5-10 bars of more, using a daily setup ? 

Opportunity cost, move on, if u want, attempt to re-enter again with a tight stop.

I notice the software MT Predictor, while I don't have or use this, I like their approach ... so go with whatever they suggest unless confident otherwise.

ATR stops are interesting for long positions during bear markets ... as stocks are much more volatile, and unless your catching a significant turn, your going to get smacked more .... F/F will probably help here more in reducing the damage than alot of other money management strats.


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## tech/a (27 January 2009)

I'm with Boggo's option 2
Click to enlarge.


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## CanOz (27 January 2009)

Why Tech? Was that a shakeout you think?

CanOz


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## glenn_r (27 January 2009)

I should clarify my thoughts Boggo, I'm presuming it will break through the round figure and fib level of 3.00 and retrace then I would buy the break.

I entered CAB this morning @ 6.04 with the initial stop @ 5.81 looking for 6.50 /6.99, this is a very vaguely similar setup.

The announcement that the Vic Premiers staff used over $100k on taxi's last year instead of public transport caused a bit of a spike today


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## BentRod (27 January 2009)

I'd wait for Glenns TL to get breached and get short from there, 4 touch is usually the kiss of death.

Stops above the previous bar or high of the day.


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## tech/a (27 January 2009)

CanOz said:


> Why Tech? Was that a shakeout you think?
> 
> CanOz





Break below B and the patterns wrong.
That was the initial analysis.

From a VSA view its a bit late but here is my take on it.
Note the lack of supply on the previous bar.
It may well return towards the recient high. A clear break above and its a good long trade.
Already is if you were a little earlier.
Click to expand


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## Boggo (27 January 2009)

weird said:


> I notice the software MT Predictor, while I don't have or use this, I like their approach ... so go with whatever they suggest unless confident otherwise.




With MTPredictor in this case weird I simply clicked on the entry bar, the stop bar and a target (I just picked 4.75 randomly in both to demonstrate) and the software just does the calcs and plots it, ie. its a manual selection for the discussion.

Just out of interest, for the same $ risk in on both, has anyone compared the actual total investment $ cost for the assumed trade in each case to the $ at risk.

It creates another view of the stop position does it not, another  worth.

Cheers


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## tech/a (27 January 2009)

> but, the risk of being stopped out is greater.




if you were stopped out then the analysis for this pattern would be proven incorrect.
No point hanging around until the next exit where it tells you not only was your analysis incorrect but you needed to be totally convinced.

On the flip side if the high is taken out convincingly the risk in the trade can be further deminished by setting a trailing stop at the $2.63 low.


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## Boggo (27 January 2009)

tech/a said:


> From a VSA view its a bit late but here is my take on it.
> Note the lack of supply on the previous bar.
> It may well return towards the recient high. A clear break above and its a good long trade.
> Already is if you were a little earlier.
> Click to expand




That is a significant bar (and low) where the VSA entry was identified, nice entry point too with a tight stop which is still intact.



tech/a said:


> if you were stopped out then the analysis for this pattern would be proven incorrect.
> No point hanging around until the next exit where it tells you not only was your analysis incorrect but you needed to be totally convinced.




Agree 100%


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## Cartman (28 January 2009)

Boggo said:


> That is nearly 20% from entry to stop, too far for my liking Cartman.




u r dead right Boggo ---- my comment was more to point out that the $2.49 stop was too close to the previous price action ---- the trade would most likely be a fizzer unless a scaled entry was used   ---- 

i dont do stocks, but if i did $2.49 would be a possible  *entry* stop at $2.35  --------- 

or even better still  --- *entry $2.20* ---- *stop $2.10
*


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## tech/a (28 January 2009)

Just on IPL as a follow up.
The previous high was tested today and appears failed.
Think its due for some ranging.


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## johnnyg (3 February 2009)

Tech, did VSA give any hints that there was supply occurring over the last few days?


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## BentRod (3 February 2009)

BentRod said:


> I'd wait for Glenns TL to get breached and get short from there, 4 touch is usually the kiss of death.
> 
> Stops above the previous bar or high of the day.




Geez.....Wish I was trading stocks


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## Boggo (4 February 2009)

tech/a said:


> Just on IPL as a follow up.
> The previous high was tested today and appears failed.
> Think its due for some ranging.




Nicely picked tech/a, didn't expect that much though.


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## BentRod (4 February 2009)

Boggo said:


> didn't expect that much though.




You weren't long were you Bog??


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## tech/a (4 February 2009)

The 3 bars previous to the large gap down show volume in selling.
But there is no way VSA or any other analysis could have seen a gap down like that.

However you would have been out of the trade and on the right side of the price action---meaning that if long you wouldnt have been exposed.


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## sleepy (4 February 2009)

For what its worth ... there were several signs of weakness (upthrust,  upthrust, no demand, supply coming in) preceding its swan dive ... on the 15 min bars/chart.

sleepy


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## Boggo (4 February 2009)

BentRod said:


> You weren't long were you Bog??




I was actually since the 9th Jan but I really did a Houdini on this, I had a tight stop at 2.59 and was stopped out on Monday.
The low of the 22nd at 2.63 was my stop signal, I actually set it at 2.59 to allow it to move around at the 2.60 to 2.63 area but I thought if it broke 2.60 it could go lower.
I had it at 2.49 but I moved it up after the dodgy action on 29th 

Had I left it where it was I would have been in more trouble than the first settlers, more ass than class really


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## BentRod (5 February 2009)

> I was actually since the 9th Jan but I really did a Houdini




Glad to hear it Bog, nice escape from that one.


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## Kryzz (19 April 2009)

Having trouble understanding on what 'figure' you base your risk percentage on.
If i were to have a $20,000 trading a/c and i risk 1% thats 200 bucks obviously, what if $10,000 is already invested, do i still risk $200 per trade?? Or is it 1% risk of available capital?? 

Cheers,

Shaun.


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## MS+Tradesim (19 April 2009)

Shaun,

Probably the two most common ways to calculate it are:
1) cash + purchase price of open positions
2) cash + current value of open positions

To use your example, say your open positions are now worth 12,000 and your purchase value was 10,000. So....

1) 10k cash + 10K purchase value = 20k -> 1% risk = $200
2) 10k cash + 12K open value = 22k -> 1% risk = $220

For myself, I use a quick sale value. Just say I had to dump my stock to exit quickly and sell down through several price levels, what would my lowest exit price be? Thus for me, cash + quick sale value = equity.

The reality is, any of these methods are elastic as obviously prices are moving, unless you are calculating everything on EOD. Just use a method that you're comfortable with as it's never going to be perfect.


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## Kryzz (19 April 2009)

Thanks for the reply MS, cleared it up for me.


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## pavilion103 (8 July 2011)

I'd be interested to hear how some other calculate their Fixed Fractional Position Size. 
- At the end of each day?
- At the end of each trade?
etc....


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## tech/a (9 July 2011)

Position sizing is calculated at the BEGINNING of a trade.


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## pavilion103 (9 July 2011)

tech/a said:


> Position sizing is calculated at the BEGINNING of a trade.




I know. But I mean based on what capital? For example if it is 1% risk of account size per trade is the account size based on cash reserves + value of open positions? Or another method?


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## Boggo (9 July 2011)

pavilion103 said:


> I know. But I mean based on what capital? For example if it is 1% risk of account size per trade is the account size based on cash reserves + value of open positions? Or another method?




It is based on your account size, ie, how much (%) of your account size are you prepared to put at risk on each trade and this in turn determines how much you are going to allocate to a trade.

In the example below (assume no slippage or brokerage for the exercise) you know where your entry point is, you know where your stop point and you know what your risk is.
So, 4 cents is the difference between entry and exit, $400 is what you are willing to lose if you are wrong, therefore we can only buy ($4.00/$0.04) 10000 shares in this stock.
Your total outlay is only $6850 and this is determined by the $400 risk.

Most people would say "but I have $20000 and I want to put half of it on this winner", that is the common thought process but is the reverse of the money management approach.
Plan around your risk, assume you are going to win but plan as if you are going to lose.

Anyway, that's my 

(click to expand)


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## skc (9 July 2011)

pavilion103 said:


> I know. But I mean based on what capital? For example if it is 1% risk of account size per trade is the account size based on cash reserves + value of open positions? Or another method?




One major benefit of FFP is that it increases position size when you win and reduces position size as you lose. How quickly/frequently you want to do that is up to you.

If you want to aggressively compound your account, you can may be use starting account size + open profit and calculate your 1% from that.

If you want to be more conservative then use starting account size less open losses.

Or somewhere in between like account size + open profit to stop price.

Or you can do so periodically... like me I adjust my position size each month based on the starting account size on all open positions.

At the end of the day the difference should not be huge, unless you have 2 or 3 big wins in a row and you could have increased the position size for that 2nd and 3rd win.


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## Boggo (9 July 2011)

skc said:


> One major benefit of FFP is that it increases position size when you win and reduces position size as you lose. How quickly/frequently you want to do that is up to you.




A very good point there skc.

The figures in my chart (below) are not representative of my account, I use them to do the calcs based on an approx average $1000 risk per trade including brokerage.

By increasing my account size over the years I have the benefit of being able to both increase the amount that I can risk and still keep the risk amount to below 0.5% of the account.

Sticking to the principle is important bit until it gets easier.

(click to expand)


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## howardbandy (10 July 2011)

Greetings all --

Before putting on a position of any size, do some analysis of the health of the system.  If it is not healthy, then the correct position size is zero.  If it is healthy, then analyze the distribution of profits and distribution of drawdowns given a range of fractional amounts.  Choose the fractional amount that gives the best result for the time horizon you are planning to remain active in trading.  

The terminal wealth, TW, (relative to initial balance) after a series of trades is determined by exactly two terms -- the geometric mean of trades, GM, and the number of trades, N.

TW = GM ^ N where ^ is exponentiation.

While TW is the same for a given pair of GM and N, drawdown varies considerably.  Drawdown depends on the number and size of the losing trades.  The key to safely increasing the fraction used in position sizing is limiting the losses on losing trades.

Thanks,
Howard


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