# Position sizing to use during system testing



## sbuxfan (12 February 2010)

Does anyone know what position sizing method should be used during system design, optimization and verification? Does the method change at some stage in the strategy development cycle?

For example, should strategies always be developed and tested, optimized and WFA with fixed shares as position size and then position sizing should be added only after success just before real-time trading?

Or is there a step after which position sizing is changed/introduced such as after the design is complete but before the optimization?

I am looking for a detailed scientific explanation as to what the correct procedure should be from a logical and math and statistical perspective. I am not looking for non-substantiated opinions.


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## howardbandy (13 February 2010)

Hi Sbux --

It depends on what you want to test.

If you want to know what happens on a typical trade, you might want to have each position the same number of shares or the same dollar amount.

If you have a system designed and tested and you plan to invest everything in every trade, you might want to use all funds available to take each new trade.

If you want to study risk analysis, you might want to set the size of each position according to some algorithm.

If you want to study aggressive position sizing, you might want to set the position size according to the account balance, risk for each trade, and a position sizing algorithm.

And so forth.

Thanks,
Howard


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