AUTOMATIC POSITION SIZING The ThinkOrSwim Position Sizer works for both stocks and futures, and lets you choose any entry method you like. And one important aspect of controlling those variables, and thereby smoothing out your growth curve, is sizing your positions correctly every time.Īnd this indicator helps you do just that. The more variables you can control in a trade, the less likely you are to screw up and lose a lot of money, and the more consistent and predictable your returns will be. This is a recipe for disaster in trading. One issue many new traders face is inconsistency - especially having losing trades that are larger than their winners. Position sizing depends on the synchronization between the model (logic, rules, and parameters) and the data being processed and traded.ThinkOrSwim Position Sizer for Risk Management and Money Management WORKS WITH FUTURES, STOCKS, AND ETFs! The ThinkOrSwim Position Sizer is a VERY important ThinkScript I made that allows me to instantly know what my entry, stop, target, and position size should be in order to maintain an equal risk on every trade I take. It is not possible for the model to determine what the position size should be. That should be done by an analysis of the distribution of the trades. Having Any position sizing, including compounding, in a trading system creates a bias based on the specific sequence of trades encountered during development.
That bias overestimates profit and underestimates risk. While it is interesting and potentially helpful to learn about betting systems, such as described by the Kelly formula, those betting / position sizing techniques are applicable to processes / games / systems that have much more stable characteristics than trading. They work best when the distribution of bet returns is stationary (as a roulette wheel) and the amount won equals the amount lost - neither of which is true for trading results.īe wary when applying simplistic position sizing. It is important to analyze the entire distribution of returns - not just the mean, or even the mean and standard deviation. The critical limitation to maximum position size is the number and magnitude of losing trades, but the entire distribution must be taken into account.Įvaluation of risk is very subjective, but it can be quantified.
"I am willing to accept a 10% risk that the maximum intra-trade drawdown (measured from highest equity to date) over the next two years will be no greater than 20%." Every trader should quantify his or her own personal risk tolerance.
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